What is a homeowners association, or HOA?

© Getty Images

A row of houses in a suburb.

By Ellen Chang, Bankrate

If you want to live in a homeowners association, or HOA, there'll likely be extra fees attached to your home and community rules to follow. Here's everything you need to know about living in an HOA.

What is an HOA?

Homeowners association (HOA) definition

An HOA is a self-governing organization in "common-interest" communities where homeowners collectively pay fees to maintain the units or neighborhood. HOAs are typically run by resident homeowners elected to a board of directors that oversee the HOA's management.

Properties within an HOA are governed by a collective set of rules and bylaws. An HOA can consist of individual houses, townhouses, high rises or condos. HOA fees often pay for use and maintenance of common areas, such as swimming pools, parks and communal lawn maintenance. Routine maintenance and strict rules help keep the neighborhood's appearance in tip-top shape and maintain cleanliness, uniformity and stable property values.

Common HOA costs and fees

Homeowners should expect to pay anywhere from $200 to $2,500 or more per year in HOA costs and fees depending on the amenities offered by the community, such as tennis courts, a swimming pool, gym or a community center. At the lower end, there may be no amenities at all. In general, homeowners have to pay their portion of the total costs to operate the association.

Neighborhoods with extensive amenities charge considerably more than those that just enforce rules and restrictions, says Marc Markel, founding partner with Roberts Markel Weinberg Butler Hailey PC and board-certified in Texas in real estate property owners association law.

"I have seen assessments for single-family HOAs as low as $50 a year and as high as $2,500 a year," Markel says. "The higher-assessment communities are generally tied to those with private streets and gates and possibly (security) personnel."

Pros and cons of HOAs

While some homeowners love living in an HOA, others find HOA rules to be too restrictive and cumbersome. Here's a list of pros and cons to help you decide.

Pros

• Your property value will benefit from more stability due to rules governing the maintenance and appearance of homes.
• You might have access to exclusive amenities like a swimming pool, playground, clubhouse, gym or on-site security.
• An HOA board will hear and mediate disputes between neighbors for property-related issues that violate HOA rules (e.g., barking dogs, trashed yards or fence disputes).
• In some communities, you might have more opportunities to mingle with neighbors at HOA social events.

Cons

• HOAs have a lot of power over how you maintain and live in your home. You might be limited to certain design schemes or paint colors, or even the number of pets you can have.
• HOA fees can stretch your monthly housing budget, especially if home prices are already steep in your area.
• Some HOAs can be aggressive about sending violation notices for the slightest infractions.
• You can be fined or have a lien put on your home for failing to comply with HOA rules or pay dues.

Frequently asked questions about living in an HOA

Many potential homebuyers are curious about the fees and rules in an HOA community. Here are the most frequently asked questions about HOA living:

What are the HOA's rules and bylaws?

Before you make an offer on a home, ask your real estate agent to request a copy of the HOA's bylaws and its Covenants, Conditions and Restrictions, or CC&R, document, which outlines the community's rules. You may also find this information online. Read each document thoroughly so you can determine whether you can live with the HOA's rules.

Some HOAs, for example, restrict the number of plants you can have in your front yard or the height of playground equipment, or require you to get prior approval for home additions or a new roof. Other rules may prohibit you from renting your home for a short period through Airbnb or another website, which can be problematic if the home is a rental property or you counted on that income to help pay the mortgage on a primary residence.

How hands-on is the HOA?

This is where some internet sleuthing comes into play. Check Facebook and Nextdoor community groups to see if people have posted about their experience with the HOA. Some HOAs also have online reviews on Google Reviews or Yelp.

How is the HOA run?

Typically, HOAs are operated by a board consisting of homeowners who reside in the community, while others are run by a real estate developer. It's important to have a sense of how receptive those in charge are when issues crop up. If the HOA has an upcoming meeting, it might be worth attending to get a feel for how things are run.

What is the HOA's financial situation?

Inspecting the financials of an HOA is an important step, particularly in a shared apartment or condo building. Look to see if an HOA has a sufficient reserve fund and insurance to make repairs if, say, a hurricane blows off the clubhouse roof or flooding damages the landscaping.

Also, find out if any debt has accrued and whether the HOA has ever had legal judgments against it. Finally, check how often annual assessments are raised and by how much.

"If you're looking to buy a home in a HOA, be sure to ask for a copy of its financial statements," says Jeffrey Ducker, a principal in the audit department at MBAF, a Florida public accounting firm. "Look at what its liquidity is, if it has sufficient working capital to operate and if it has set aside reserves for future major repairs and replacements. If it doesn't have reserves, that would be considered a negative factor."

What amenities does the HOA community have?

To fully understand what your dues are paying for, find out what's included. Trash pickup and landscaping of shared areas? A pool or clubhouse? Twenty-four hour security? Find out what rules or restrictions the HOA has in place for using those amenities, too.

What projects are in the works?

It's good to know if the HOA is expanding its amenities, so ask what projects are in the works or planned and how they will be funded. If the HOA promises a new pool with a slide in your part of the neighborhood, ask when construction will begin and finish. You should also find out how many projects are scheduled and how that will impact your annual dues so you can budget the increase in costs.

What special assessment fees can I expect?

Another situation that sometimes catches homeowners in an HOA off-guard is a special assessment. This is common when a natural disaster or other unanticipated problem hits and the community requires significant unbudgeted repairs. In that case, the HOA has the power to levy a special one-time fee to cover the costs, says Jackie Boies, senior director of housing and bankruptcy services for Money Management International, a nonprofit debt counseling organization in Sugar Land, Texas.

"Following a hurricane, a friend of mine was shocked to learn she would be assessed an additional $1,000 for rebuilding a fence around the entire community, which was not included, insured or part of the general HOA contract," Boies says.

Bottom line: Should you live in an HOA?

It's true that living in an HOA community comes with some trade-offs. On one hand, you get the benefit of a well-maintained neighborhood that might have more amenities than a community without an HOA. On the flip side, you won't get as much leeway to decorate your home as you'd like. Plus, you'll have the added monthly expense of HOA fees to consider.

Weigh the pros and cons of living in an HOA carefully, along with the costs, to determine if it's right for you.

See more at Bankrate