Are you thinking about moving to a community with HOA fees? If so, here are a few things to keep in mind and understand before you sign on the dotted line.
Each year the HOA board of directors prepares a community budget. It is important to get a copy of this to begin to understand what the monthly fee is and why. For an example, lets say that the HOA fee for the current year is $300 per month. How is this broken down and represented in the budget?
Current Year Operations
It is typical that a portion of your HOA fee each year will go toward current year operations that are budgeted expenses for the year. This could include gardening, water, insurance, property management, etc. In our $300 per month example, it is feasible that current year operations might be approximately $200, or 2/3 of your total fee. So, what does the remaining $100 cover?
Current Year Reserves
It is also typical for an association to save money for long-term repairs and expenditures such as roofs, roads, parking lots, etc. In keeping of our example, it is possible for an association to save 1/3 or $100 to cover these future and sometimes unforeseen expenses. This money accumulates into "reserves" so that the HOA can pay cash for these expenses.
Other questions to consider before you purchase a home with an HOA might include:
- How are fee increases set?
- How often do increases occur and what is the historical trend?
- How large is the reserve fund?
- What are current and past conflicts?
- What is the process for resolving any conflicts?
- Has the HOA sued anyone and was that situation resolved?