Home Ownership Costs: Homeowners Association Dues

Other necessary costs of ownership consume a quarter to half the amount borrowers could potentially put toward loan payments.

Repost from OC Housing News 2011-2016

Homeowner Association Dues and Fees

hoa_versus_bankersMany modern planned communities have homeowners associations formed to maintain privately owned facilities held for the exclusive use of community residents. These HOAs bill the owners monthly to provide these services. They have foreclosure powers if the bills are not paid.

HOAs are given the authority to enforce the covenants, conditions, and restrictions (CC&Rs) and to manage the common amenities of the development. It allows the developer to legally exit responsibility of the community typically by transferring ownership of the association to the homeowners after selling off a predetermined number of lots. Most homeowners’ associations are non-profit corporations, and are subject to state statutes that govern non-profit corporations and homeowners’ associations.

California has many problems with condo associations that are poorly managed. These associations often underfund their reserves creating potential for costly assessments. This information can be difficult to find and analyze prior to a purchase. HOAs only provide their financials to potential buyers who are already in escrow, and these documents often appear at the last minute preventing any meaningful analysis. Even in circumstances when the documents are provided in a timely manner, most novices lack the time or sophistication to decipher the reports. Further, since these documents come so late in the process, many buyers who do discover problems end up going through with the transaction anyway because they are emotionally invested in the property.

These costs add up

The impact of these costs can be significant, and since they subtract from the amount available to pay the mortgage, these costs have dramatic effect on loan balances and thereby market prices. Just how big is this effect? Take a look at any of the properties on this site, and you can see the calculations for yourself. By and large, about a quarter to a third of PITI goes toward these costs, and on properties with high HOAs, this number can exceed 50%. Have you ever wondered by properties with high HOAs seem like relative bargains compared to similar properties with low HOAs? This is why.