Is Buying a House in a Homeowners Association a Smart Financial Move?

  • 3 months ago
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As you search for your next home, you might find an appealing property that belongs to a homeowners association. Owning a house in an HOA offers several benefits, but it’s important to understand the financial costs, as well as the restrictions you’d be bound by, before you buy.

Benefits of Living in an HOA
Members of a homeowners association have access to amenities, such as a gym, pool, and tennis courts. The HOA can also provide trash pickup, snow removal, and other services. Membership in an HOA might give you access to amenities that you would otherwise be unable to afford, and you might receive services that you would otherwise have to perform yourself or pay someone else to do.

Rules Members Must Follow
HOAs set and enforce rules that are intended to keep the area clean and orderly and maintain property values. In some HOAs, members must follow a long list of rules that cover everything from the color they can paint their front door to where they can park vehicles. Some HOAs are relatively lax when it comes to enforcement, while others are incredibly stringent. If you violate a rule, you can be assessed a fine.

Costs of HOA Membership
In exchange for amenities and services, members are required to pay fees. Dues can vary widely from one location to another, and costs can also change over time. Often, HOAs charge relatively low fees to cover routine services and use special assessments to finance larger projects. For example, if a common building needs a new roof, the HOA can divide the cost among its members. Special assessments might be thousands of dollars per homeowner.

If you violate a rule and don’t pay a fine, or if you fall behind on your dues or don’t pay a required assessment, the HOA can take action against you. In some cases, an HOA can even foreclose on a property if the owner fails to make required payments. Laws related to HOAs vary by state.

Some HOA rules might affect your ability to earn a living. For instance, an HOA might prohibit members from operating home-based businesses or renting out their properties.

Figure Out If an HOA Is Right for You
Every HOA is different. Before you decide to buy a property that belongs to one, carefully review the covenants, conditions, and restrictions, which outline the rules that members are required to follow. Make sure that you understand what amenities and services the HOA provides and what you’d be responsible for handling yourself.

Review the HOA’s financial statements to learn how much members currently pay in dues and whether fees have risen over the past several years. Find out how much the HOA has reserves to cover large repairs.

Once you have gathered that information, compare the costs to the benefits you’d receive. Think about your finances and lifestyle and decide whether buying a house in that community would be a wise financial decision.


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