Factoring Homeowners Association Fees into Your Housing Budget

In the midst of your home-buying experience, one expense that often gets overlooked is the homeowners association fee or HOA. These regular fees, typically paid monthly, are essential for maintaining the community you've chosen to live in, but they can also put a considerable strain on a tight budget.

Getting to Know Homeowners Association (HOA) Fees

Before we dive into how to budget for HOA fees, it's essential to understand what they are. The Homeowners Association is an organization in a residential community that makes and enforces rules for the properties in its jurisdiction. The HOA collects monthly or yearly fees from each household, which is then utilized to take care of communal property and services.

1. Understand What’s Included in the HOA Fees

The first step when considering an HOA fee is understanding what the fee covers. Some HOAs use the fees for basic services like trash removal and lawn care, while others may cover utilities, repair costs for shared amenities, insurance for communal areas, and saving for future large-scale projects or unexpected maintenance needs.

To fully understand the value of these fees, it's necessary to know what's included, as these services can offset other costs you would have to cover independently.

2. Research the Average HOA Fees

Understanding the average HOA fee in your area, or in the specific complex where you're considering buying, can provide you with a baseline for your budget. These fees can range widely depending on the property and services included.

Keep in mind that premium amenities like gyms, pools, or gated access can drive up these costs significantly. While it might look attractive at first glance, it's important to carefully consider whether you can truly afford such extras.

3. Include HOA Fees in Your Purchase Price

When assessing how much you can afford for a house, don't forget to include HOA fees. Consider this scenario: You may qualify for a $200,000 house, but if the home has $200 a month in HOA fees ($2,400 a year), that could be equivalent to an additional $50,000 on your mortgage loan when you calculate it into your monthly payments.

4. Plan HOA Fees in Your Monthly Budget

Once you know how much the HOA fees are, incorporate them into your regular budget. Treat them like a fixed expense, such as your mortgage or car payment. Skipping HOA payments can lead to serious consequences, much like neglecting your mortgage.

5. Consider the Financial Health of the HOA

It might seem odd, but considering the financial health of your prospective HOA can be a crucial step. If the HOA's reserve fund is too low, there's a chance that they could issue a 'special assessment'. This is a fee that goes beyond your monthly dues and can sometimes amount to thousands of dollars.

6. Evaluate the Sustainability of the HOA Fees

Last but not least, it's essential to evaluate whether you could still afford the HOA fees if they went up. HOA fees can increase when the cost of services goes up or when there's a shortfall in the budget due to unexpected expenses.

Conclusion

Buying a house is a significant decision and a considerable financial commitment. The additional cost of HOA fees can make budgeting more complicated, but by conducting diligent research, scrutinizing your monthly budget, and fully understanding what your HOA fees cover, you can better prepare for this cost and avoid any unpleasant surprises. Remember, the ultimate goal is not just to buy a house but to create a sustainable and financially stable home for yourself and your family.