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Understanding HOA Fees | Homeowner’s 2022 Guide

Research indicates that 58% of homeowners in HOA communities and single-family homes pay an average monthly fee of $250. Despite this substantial number, homeowners lack adequate information about HOA fees and why they have to pay for them in the first place.

Typically, properties in homeowner's association communities come with the requirement that the homeowners will pay a certain amount of money per month. These costs are generally used to provide additional amenities like gym equipment, swimming pools, and security.

All in all, HOA fees are a way of ensuring that both current and future homeowners can enjoy all of the features and components of the neighborhood for years. Let's take a deeper dive into what HOA fees are and how they affect your finances.

What Are HOA Fees?

An HOA fee is the amount of money homeowners are required to pay the owners of the association. Homeowner’s associations collect fees to maintain and improve properties within the community.

HOA fees are typically levied on condominium owners. However, they may also be applicable to homeowners of single-family homes. Let's take a closer look at what HOA fees are.

What Does an HOA Do?

HOA fees are used to pay expenses related to the upkeep of a condominium community’s common areas. Communities often include lobbies, swimming pools, patios, and elevators, among other features. Plus, there are usually services offered as amenities, like landscaping or standard utilities such as water, sewage, and garbage disposal.

The homeowner’s association may even impose specific assessments intended to take care of major repairs like roofing or elevator replacement. At the same time, HOA fees that apply to single-family homes in various neighborhoods are put towards neighborhood amenities like a clubhouses, tennis courts, or parks.

How Much are HOA Fees?

HOA fees may vary drastically. However, some experts believe that an accurate range of HOA fees is anywhere from $100 to $700 per month. Keep in mind that the exact costs of your homeowner’s association fees will depend on what your HOA provides you.

Typically, the more services and amenities in your community, the higher your HOA fees will be. Moreover, you may have to deal with even higher costs if the reserve funds are not managed adequately.

Are HOA Fees Tax Deductible?

If the property you live in is used for rental purposes, the IRS will consider HOA dues a rental experience. However, you may deduct HOA fees covering a special assessment.

What Do HOA Fees Cover?

These dues cover many amenities and services, including but not limited to the following:

  • Lobbies
  • Patios
  • Landscaping
  • Swimming pools
  • Tennis courts
  • Community clubhouses
  • Elevators
  • Water and sewage
  • Pest Control inspection
  • Garbage disposal

Seven Ways HOA Dues Affect Your Finances

Before purchasing a home that requires HOA fees, you should first learn everything there is to know about the process. Let's discuss the different ways HOA dues can affect your monthly finances.

1. HOA Fees Can Change

Before you purchase a home that is part of an HOA, you and your lender need to spend some time evaluating the property's monthly HOA costs. This way, you can determine whether you can afford the dues in addition to your mortgage.

One major caveat of HOA fees is that they can change over time. The fees can spike up when home projects require additional financing or as the result of automatic inflation adjustments. In some cases, housing payments can become unaffordable for homeowners strictly because of the HOA fees, so make sure you ask your lender about the HOA's history of increasing fees.

2. They Don't Cover Everything

HOA fees cover routine costs as well as occasional expenses. However, in some cases, critical projects and emergency repairs will require unexpected out-of-pocket fees for homeowners. In these cases, homeowners will have to pay an additional assessment which can cost several hundreds or thousands of dollars.

3. There Could Be Legal Consequences

HOA fees go towards a premium insurance policy that doesn't cover your personal property, your unit's interior, the home you reside in, damage originating from your unit, or your personal liability.

Discuss the risks associated with an HOA with your insurance provider to find out which policy will match your needs the best. Make sure you fully understand the prices of the policy before you purchase an HOA property in order to ensure that you're well-aware of the costs you’ll potentially face in the future.

4. Your Credit Can be Affected

Purchasing a home in an HOA community means you've agreed to pay monthly HOA fees. If you fail to pay the costs, you'll owe money to your HOA. Plus, your HOA has the power to send past-due accounts to collections.

They may even put a lien on your home or initiate a foreclosure. From there, collection accounts and public records will start appearing on your credit reports. These negative marks on your credit reports will make it harder for you to secure other loans or find affordable housing in the future.

5. Your Taxes May be Affected

HOA dues are not deductible for your personal residence. But keep in mind that if you rent out your property and pay on-time HOA fees, you can reap the benefits of a tax break.

Moreover, a home office deduction may also be possible if you work from your place of residence. Reach out to a tax accountant to learn more about your tax break options.

6. You Pay for Things You Don't Own

HOA fees cover the costs of various repairs and renovations in your neighborhood. But the fact of the matter is that you may not need everything that you pay fees for.
That is the major downside of living in a shared space. For instance, you may not ever use the pool or the rooftop patio but you'll still have to help pay for them anyway.

7. Pay Dues at Closing

When you purchase a property that boasts as an HOA community, you'll have to pay dues for every day you live there. On the brighter side, you only have to pay a prorated amount once you’ve sold your home.

What Happens if I Don't Pay My HOA Fees?

If homeowners fail to pay the requisite assessments, the homeowner’s association can collect the dues with the help of various conventional collection processes. From sending demand letters and making collection calls, to initiating foreclosures and filing a civil suit, homeowner’s associations will pursue legal action against homeowners who don’t pay their HOA fees.

How are Homeowners’ Insurance Rates Determined?

Policy rates are based on how likely an insurer believes you are to file a claim. To make this decision, insurers analyze loss data, homeowner's characteristics that are most likely to result in a suit, the neighborhood, and the age of the house, and condition of the property.

Cost-Cutting Insurance Tips

Homeowner’s association fees refer to monthly dues that homeowner’s associations collect. Typically, HOA fees are used to pay for costs of repairs, maintenance, and other amenities in the community. While it's best to not play it cheap with coverage, there are various ways you can reduce your insurance premium:

  • Maintain a robust security system
  • Increase your deductible
  • Seek out multiple policy discounts
  • Plan for renovations beforehand
  • Pay off your mortgage
  • Review and compare your policies

 

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All material is presented for informational and educational purposes only and should not be construed as individual financial, investment, or legal advice or instruction. ZeroMortgage does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by ZeroMortgage. ZeroMortgage, its affiliates, and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. ZeroMortgage does not provide tax advice. Please contact your tax adviser for any tax related questions.

This page last updated: March 21, 2022