What is a Homeowners Association?
A homeowners association, often referred to as an HOA, is a legal organization created to uphold certain standards within a community or development. Typically, an HOA is established by the real estate developer who originally built the community or by a group of homeowners who want to ensure the upkeep and quality of their neighborhood. The purpose of an HOA is to manage and maintain shared or common areas within the community, such as lobbies, pools, gyms, landscaping, and sometimes even exterior building maintenance. In return for this management, each homeowner pays a fee, called HOA dues, which contributes to the overall budget of the association. One of the key responsibilities of an HOA is to create and enforce a set of rules known as CC&Rs (Covenants, Conditions, and Restrictions). These rules can cover a wide range of topics, from what color you’re allowed to paint your front door to restrictions on renting out your unit. They are designed to protect property values and ensure that all residents follow a consistent set of standards. An HOA is typically governed by a Board of Directors, usually made up of homeowners in the community. This board makes decisions about how to allocate funds, what repairs or upgrades are needed, and how to enforce community rules. They often hire a property management company to handle day-to-day tasks like collecting HOA dues, paying for utilities and maintenance, and coordinating with service providers.Buying a Condo? Learn What the Seller Should Provide to You
If you're buying a condo in California (and in many other states), the seller is required by law to provide you with specific HOA-related documents before the sale is finalized. These documents give you insight into how the HOA operates, what the financial situation looks like, and what rules you'll be expected to follow as a new owner. Here are some key documents you should expect to receive:- CC&Rs: The rules and regulations governing what you can and cannot do with your unit, from exterior alterations to pet policies.
- Annual Budget: This outlines the HOA’s expected income and expenses for the year. It’s important to see how well the HOA manages its finances and whether they have enough reserves for unexpected costs.
- Bylaws: These explain how the HOA is structured, how decisions are made, and how the board is elected.
- Meeting Minutes: Notes from recent HOA meetings can reveal important details about upcoming projects, disputes among homeowners, or any financial concerns.
- Does the HOA have any outstanding debt or lawsuits?
- How much money is in the HOA’s reserve fund (which is used for big repairs like roof replacements)?
- Are there any homeowners behind on their dues, and how is the HOA handling those situations?
What Lenders Will Want to Know Before Loan Approval
When you're buying a condo or townhouse, your lender will want to know about the HOA too. Lenders have their own set of criteria for approving loans on properties governed by an HOA, and they’ll likely ask for HOA-related documents as part of the loan approval process. Why? Because your HOA dues will be factored into your overall monthly housing expenses. Lenders need to know if those dues, combined with your mortgage, property taxes, and insurance, will still fit within your budget based on your income. If HOA dues are particularly high, or if the HOA is in financial trouble, it could impact your ability to get approved for a loan. That’s why it’s important to gather all HOA-related documentation as soon as you enter into a contract, so there’s no delay in the approval process. Make sure you communicate any updates about the HOA dues to your mortgage lender as early as possible. The sooner your lender has this information, the better they can assess your eligibility for the loan amount you need.Can You Live with Your New HOA?
Ultimately, living in a community with an HOA means adapting to its rules and guidelines. Some people love the structure and community upkeep that an HOA provides, while others feel restricted by the rules. Before you commit, think about how the HOA’s rules might align with your lifestyle. Here are a few questions to consider:- Are there rules about pets, parking, or renovations that might affect you? For example, some HOAs limit the number of pets you can have or restrict where you can park.
- What’s the history of the HOA? Have they handled maintenance issues well in the past? A well-maintained community is a sign of a proactive HOA.
- Is the community a good long-term fit? If you’re planning to rent out your property in the future, make sure the HOA allows rentals or has clear guidelines about them.