What is the HOA fee? Understanding costs and what they cover

Should you buy a home that requires HOA fees? Lots of home listings in the U.S. fall into this category.

HOAs create a tradeoff:

• They can help protect the value of the property you're buying...
• but they may also limit where you park, how you decorate, and how many people you can have over for a cookout.

Before moving forward with a home in a homeowners association (HOA), be sure to check the rules and costs. 

What are HOA fees?

Homes located in subdivisions, condo complexes, and other planned neighborhoods are often part of homeowners associations, also known as an HOAs. 

For people who buy these homes, HOA fees, sometimes called HOA dues, are not optional. They become part of the home's monthly payment along with the mortgage payment and local property taxes.

HOA fees keep the HOA operating, and they pay to maintain common areas like swimming pools, signage, and nature trails. 

Much like property taxes, HOA fees will still be mandatory after the mortgage is paid off.

To estimate your overall housing costs, including the mortgage payment, homeowners insurance, and property taxes, use a mortgage calculator.

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What does an HOA fee cover?

HOA rules and fees vary a lot between communities. Generally, an HOA that offers a lot of amenities, such as swimming pools, fitness centers, gathering spaces, and outdoor recreational facilities, will charge higher HOA fees.

An HOA community with only a few extras, like a neighborhood sign or landscaping around a traffic circle, will cost less.

HOA services usually fall into one of the following categories:

Maintenance of common areas

HOAs have to maintain and manage shared spaces. This often requires landscaping, maintaining parking lots, cleaning lobbies and hallways, and keeping sidewalks clean. In some climates, this also includes removing snow and ice.

Keeping common areas clean and usable can support the property value of each individual homeowner. 

Security services and gated access

Many HOAs provide extra security such as gated entrances, security personnel, surveillance systems, and controlled-access technology. These features enhance safety and can make your community more attractive to future buyers.

Community amenities like pools and gyms

HOA management fees also pay for amenities that improve the quality of life in a neighborhood. Swimming pools, in particular, cost a lot to maintain. Tennis courts, fitness centers, pickleball courts, picnic areas, and other gathering spaces can also add to an HOA's costs.

Insurance for shared structures

HOA fees include master insurance policies to protect common areas and shared buildings from damage and liability claims. This coverage complements each individual's homeowners insurance policy. It doesn't replace the need for a homeowners policy.

Reserve funds for future repairs

Most healthy homeowners associations budget part of their annual income for a reserve account. Reserve funds can pay for major repairs and replacements like roofs, elevators, or roads without hitting homeowners with surprise special assessments later. A well-funded reserve account can reflect solid HOA management.

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How much are homeowners association fees?

HOA fees can range from less than $100 a month to several thousand dollars in month for some luxury buildings.

The national average HOA fee? About $250 to $300 a month.

Location plays a big role in HOA costs:

• Above average areas: Florida, California, and luxury buildings in major cities
• Below average areas: Midwestern states, Southeastern states (other than Florida), smaller cities 

Factors that influence HOA costs

Along with location, other factors that affect HOA costs include:

– Property age: Older buildings need more maintenance which can increase HOA dues

– Community size: Homeowners associations with more members spread costs among more people. This can lower costs some.

– Amenities: HOAs with pools and other expensive amenities usually cost more. 

– Staffing: Neighborhoods with 24/7 security, an on-duty concierge, shuttle services cost more to operate and require higher HOA dues.

– Management styles: For instance, self-managed associations sometimes operate more economically than those using professional management companies.

Differences between condo and single-family home fees

Most condo buyers pay higher HOA fees than single-family home residents. Condominium complexes include exterior maintenance, building insurance, and common area utilities. Single-family communities mainly fund shared amenities and grounds maintenance.

This difference shows in the numbers: condo association fees average 30 to 40 percent higher than HOA fees for detached homes in planned communities and subdivisions. 

What happens if you don't pay your HOA fees?

Missing HOA payments can turn into a big problem. Here's what you can expect if you fall behind.

Late fees and penalties

Most associations extend a 10- to 15-day grace period before charging late fees. Once that window closes, the HOA will likely start charging late fees. Fees vary by association. Some may charge $25 to $50 flat fees; others may add on 10 to 20 percent of the payment amount.

When a homeowner falls 30 or more days behind on HOA fees, the association may start charging interest on the unpaid fees.

If you're thinking about buying a home in an HOA community, be sure to read the bylaws to learn about late fees first. 

Legal action and liens

After 60 to 90 days of non-payment, associations usually send formal demand letters. The HOA can then place a lien against your property. The lien gives the HOA a legal claim to your home.

This filing incurs additional fees that get added to your debt. After six to 12 months of non-payment, the association can pursue foreclosure proceedings, forcing the sale of your property to recover the money you owe.

Impact on credit and homeownership

Unpaid HOA dues will likely be reported to credit bureaus, damaging your credit score. Selling the home will be harder since the unpaid HOA balance would have to be repaid from proceeds from the sale.

Let's say your HOA charges $300 a month. If you fall a year behind, that's $3,600. At 15 percent interest that past due balance would become $4,140. 

Plus, mortgage lenders typically refuse refinancing applications when your HOA account shows delinquency.

Things to consider about HOA fees

Before investing their money in an HOA, borrowers should check out the HOA closely: 

Review the association's financial health

The HOA should have a healthy reserve fund and pay its bills on time. Most, if not all, members of the HOA should be up to date on their dues.

Investigate fee increase history

Sporadic fee changes could be a sign of poor management. Read meeting minutes from the past year to look for unplanned major expenses. A pattern of unplanned expenses could be a sign of poor planning.

Analyze rules and restrictions

Read the HOA's Covenants, Conditions, and Restrictions (CC&Rs). Do they match your lifestyle? Pay attention to restrictions on:

• Whether you can rent your home (short-term or long-term rentals)
• Whether you can own pets
• Whether you can operate a home office
• Whether you can make temporary or permanent changes to the appearance of your home
• Where you can park or whether you can do things like changing the oil in your car on the property

If you'd like to rent the home in the future, for example, the HOA's rules on this could make or break your decision.

Calculate the value to you

Do you value the services and protections the HOA provides? Do you value them enough to pay for them month after month? If so, the HOA may be a good fit for you. 

HOA fee FAQs

What should I do if I can't afford my HOA fees?

Contact your association board immediately. Many HOAs offer hardship programs or temporary payment plans. HOAs typically prefer working with homeowners rather than taking legal actions. Some homeowners can refinance their mortgage and use home equity to catch up on HOA dues. In any case, ignoring payments makes the problem worse.

Why do HOA fees vary so much by location?

Regional cost differences affect HOA fees. Property values, local labor costs, and utility expenses all factor into HOA dues. Communities in harsh weather regions often charge higher fees to cover snow removal or hurricane preparation. Amenity packages create the most noticeable differences: luxury HOA communities with lost of amenities cost more. Older buildings typically require higher dues to address aging infrastructure compared to newer developments.

What happens if I stop paying my HOA fees?

Unpaid dues accrue late fees and interest charges. The HOA may restrict your access to community amenities and services. After continued non-payment, the association can place a lien against your property, potentially leading to foreclosure proceedings. Delinquent accounts often get reported to credit bureaus, damaging your credit score.

How can I determine if an HOA's fees are reasonable?

Review the association's financial health, examine what services and amenities are provided, check the HOA's reserve funds, and compare fees with similar communities in the area. HOA fees benefit only the neighborhood or community served by the HOA. Usually, an HOA adds an extra layer of services that complement services provided by local police, fire, EMS, and sanitation services. For buyers who don't value this extra layer of services, HOA fees may always seem unreasonable. 

What is typically included in HOA fees?

HOA fees generally cover maintenance of common areas, such as landscaping, parking lots, and shared amenities like pools and fitness centers. They may also pay for extra security services and  insurance for shared buildings.

HOA dues are only part of total housing expenses

Should you buy a home in an HOA community?

• For homeowners who value the protections and services the HOA offers, HOA dues can be money well spent.
• For homeowners who want to use their property to the extent allowed by local law, an HOA can seem like an unnecessary nuisance.

HOA fees are only part of overall housing costs. A mortgage preapproval can show your overall homebuying costs, including your mortgage principal and interest, property taxes, homeowners insurance and HOA dues.

Estimating all the costs can give some context on whether you'd like to pay HOA dues.  

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