A homeowners association (HOA) fee is a charge assessed by a homeowner’s association to its members to cover the costs of managing and maintaining the common areas of a residential community. The HOA fee is also commonly referred to as a “dues” or “assessment.”
HOA fees cover lawn care, insurance, pest control, etc. There are pros and cons to living in a community with an HOA. You need to understand them clearly before making your decision.
HOA fees are used to pay for the ongoing expenses of a residential community. These costs include monthly utilities, taxes, and insurance.
There are two types of HOAs: mandatory and voluntary. Mandatory HOA fees are required to live in a given community. It is part of the contract signed when buying a home in such a community. The fee is usually collected monthly, quarterly, or annually depending on your area. Voluntary HOAs are not required to live in a given community. It is an option for those who want to join the community and pay the fee. The fee is usually collected monthly, quarterly, or annually depending on your area.
HOA fees are vital because they help maintain the common areas of a community. It includes amenities, such as pools and parks, and infrastructures, such as roads and sidewalks. These costs would typically fall onto the individual property owners without an HOA.
What is Homeowners Association (HOA) Fee?
Homeowners Association (HOA) fee is an amount that a homeowner’s association charges its members to manage and maintain the common areas of residential communities.
Most homebuyers usually face a term called homeowners association in their contract. HOA dues are a form of self-governance that helps maintain a community’s common areas, amenities, and fixtures. Homeowners are obligated to pay for the HOA fees because it is a part of their contract when they purchase a home in these types of areas.
What Do HOA Fees Cover?
Some homebuyers think that HOA dues are only used to maintain recreational facilities in their communities. It is not true because these types of associations also use their money for other purposes, including:
- City services
- Lawn care
- Pest control
- Amenities and services
- Maintenance and repairs
- Reserve funds
1. City services
In the simplest terms, city services can be defined as those services a city provides for its residents. It would include trash collection, street lighting, and road maintenance. The average fees usually cost homeowners between $100 and $200 per year. The payment frequency may vary depending on the HOA, but they may charge a standard monthly fee.
Some HOAs calculate their city service fees by multiplying a homeowner’s property’s assessed value by a specific rate. Others may charge a flat fee for all residents in the community. For example, a standard rate of city service fees is $100 for every $100,000. For a homeowner who lives in an area with an HOA and his home’s market value is $250,000, the HOA would charge him $3,000 per year to cover these costs.
2. Lawn care
Lawn care is the process of caring for a lawn to ensure that it is healthy and looks good. It usually includes watering, mowing, fertilizing, and weed control. The average cost of lawn care services can range from $30 to $80 per month. The payment frequency may vary depending on the HOA, but they may require a fee every month.
The formula for calculating lawn care fees is usually based on the square footage of a homeowner’s property. It is multiplied by the monthly rate that the HOA charges. For example, a homeowner with a property that measures 2,000 square feet would be charged $10 per month.
Insurance is another vital cost that HOAs cover. The association may choose to be its insurance provider or use a separate company. The association would then pass this expense onto the homeowners in their community through HOA dues.
The average homeowner pays between $50 and $100 per year for the insurance fee, covering common areas such as their swimming pool, parking areas, and storage units. You may need to pay this fee every month.
To calculate the insurance fee, the HOA would take the total amount of money they need to ensure all of the common areas and divide it by the number of homeowners in their community. It will give them each homeowner’s share of the cost. For example, an HOA needs $100,000 to ensure its common areas. If there are 50 homeowners in the community, each homeowner would need to pay $2 per month for insurance.
4. Pest control
Pest control refers to the process of eliminating and preventing pests such as insects, rodents, and weeds. It is usually done through pesticides, herbicides, and other methods. Also, the estimated cost can vary depending on the size of a home. It can range from $30 to $80 per month. The payment frequency may vary depending on the HOA contract, but the usual fee may be charged every month
To calculate pest control fees, HOAs usually use a square footage rate. It is multiplied by the monthly rate that the HOA charges. For example, a homeowner with a property that measures 2,000 square feet would be charged $10 per month.
5. Amenities and services
Amenities and services usually refer to the extra features and benefits a homeowner’s association provides its members. This can include swimming pools, tennis courts, playgrounds, and clubhouses. The average cost for using these amenities can range from $10 to $50 per month. The payment frequency may vary depending on the association, but usually, homeowners are charged every month.
If you’re interested in how amenities and services fees are calculated, HOAs usually calculate them by multiplying a homeowner’s total square footage of his property and the average monthly association dues. For example, a homeowner with a 2,000-square foot house would pay $20 per month.
6. Maintenance and repairs
Maintenance and repairs are services that are needed to maintain the HOA’s facilities. It includes replacing broken windows, mending roofs, watering plants, painting fences, or cleaning pools. The average maintenance and repair fees range from $50 to $100 per month. The frequency of payment can vary depending on the contract. It may be paid monthly for some associations, while for others, it is paid every year.
HOAs usually use a square footage rate to calculate the maintenance and repair fee. You need to multiply it by the monthly rate that the HOA charges. For example, a homeowner with a property that measures 2,000 square feet would be charged $50 per month.
7. Reserve funds
Reserve funds are pooled amounts of money that HOAs use for future expenses in the neighbourhood. It includes significant repair costs, renovation projects, or new amenities. Moreover, the average reserve fund contribution is $200 to $400 per year. However, this amount may vary depending on the size and condition of the neighbourhood.
Reserve fund fees are usually assessed annually, and homeowners are generally charged based on the square footage of their property. For example, a homeowner with a 2,000-square-foot house would be charged $200 per year.
How Much are HOA Fees on Average?
On Average, the HOA fees range between $200 and $300 per month. While HOA fees can go anywhere between $200 and $300 per month, the most common costs are usually in the lower end of that range. Therefore, if you live in a neighbourhood with an average-sized property, your monthly HOA fees should be in the $200 to $300 range.
There are a few ways that HOAs calculate fees. The most common way is by using a square footage rate. It is multiplied by the monthly rate that the HOA charges.
Are Homeowners Association Fees Tax Deductible?
No, Homeowners Association fees are not tax-deductible. It means that you cannot write off the expenses on your taxes as a deduction.
Generally, homeowners association fees are not tax-deductible because they’re considered for the common good and benefits of all the community members. It is why HOA fees go toward amenities that all residents can enjoy, such as pools or parks.
However, some of the services or amenities that your HOA may provide may be tax-deductible. For example, if you use the neighbourhood’s pool, that user may be tax-deductible. Check with a qualified tax professional to see if you can write off any of your HOA fees.
What are the HOA Pros and Cons for Homebuyers?
When it comes to buying a home, there are a few things that you need to take into account. One of these is homeowners association fees. HOAs can have both pros and cons for homebuyers.
Pros of HOA are listed below.
- HOA manages the common areas of your property – Roads, sidewalks, and common areas are managed by the HOA. It is excellent if you’re not technical or don’t have time to manage these areas yourself.
- HOA maintains your property’s exterior – Your HOA will usually clean up your yard or trim hedges if they affect the neighbourhood’s appearance.
- HOA can increase the value of your home – If you’re looking to sell your home in the future, having an HOA can be a big plus. Since HOAs usually have rules and regulations in place, homeowners take pride in their community and are willing to follow guidelines. It can be appealing to potential buyers.
Cons of HOA are listed below.
- HOA can be restrictive – HOAs often have rules and regulations in place that homeowners must follow. It can include what colour you can paint your house or what type of fence you can put up.
- HOA fees can be expensive – Homeowners association fees can be costly, especially if your neighbourhood has a lot of amenities.
- HOA can be time-consuming – If you’re not happy with the way your HOA is run, it can take a lot of time and effort to get it changed. You’ll likely need to attend meetings and rallies to make your voice heard.
Homebuyers should weigh the pros and cons of homeowners associations before deciding if an HOA is right for them. If you’re not sure if an HOA is a right fit, talk to your real estate agent about the pros and cons of the specific neighbourhood you’re interested in. They’ll be able to give you a better idea of what to expect.
What Happens If I Don’t Pay My HOA Fees?
If you don’t pay your HOA fees, the consequences can be severe.
Most HOAs will send a bill for the fees to the homeowner. If the bill is not paid, the HOA can take steps to collect the owed money. It may include sending a letter to collections or hiring a law firm to pursue the collection.
Some of the consequences of non-payment are:
- HOA can foreclose on your home
- HOA can sue you for the money that is owed
- HOA can place a lien on your home
- HOA can suspend your voting rights
- HOA can terminate your membership in the association
If you’re facing problems with paying your HOA fees, contact your HOA and see if a payment plan is in place. Many HOAs are willing to work with homeowners to help them get caught up on their payments.
What are the Immediate Consequences of Failure To Pay?
If you are a homeowner and you stop paying your homeowners’ association fees, the following can happen:
- You’ll receive a notice: The homeowners’ association (HOA) will send you a letter stating that you owe the HOA fees and what they are. You can sometimes avoid paying late fees or penalties if you pay your HOA fee right away, but usually, the amount owed is lumped together with other unpaid fines and “past due” accounts, and your account balance grows. You are sent a notice that your account is in arrears.
- You’ll be charged with a late fee: Hoa fees are usually due on the first of each month, and if you do not pay them by then, you’ll be charged an additional late fee. The HOA may also charge “reasonable” collection costs if it takes legal action to collect the payments from you.
- You’ll have your HOA privileges suspended: If you continue to not pay your fees, the HOA may suspend your privileges, including using the community pool, clubhouse, or other common areas.
What are the Legal Consequences 0f A Failure To Pay?
If you stop paying your homeowners’ association fees, the HOA can take legal action against you to recover the money that is owed. Some of the legal consequences that can happen may include:
- HOA may file a lien against you: The HOA can place a lien on your home. It means that if you ever want to sell your home, it will be difficult, and perhaps impossible, to do so. The lien may also affect your credit score.
- HOA can foreclose on your home: If you owe the HOA more than two years’ worth of fees, the HOA can initiate foreclosure proceedings. It means that if you fail to pay your costs for an extended period, not only can your HOA fees affect your credit, but also the foreclosure itself will appear on your credit report.
- HOA may pursue a lawsuit: If the HOA takes legal action to recover the fees, you may be sued. If the HOA wins the case, it can get a judgment against you for the amount of money owed, plus interest and attorneys’ fees.
What are the Foreclosure Consequences of A Failure To Pay?
If you stop paying your homeowners’ association fees and the HOA initiates foreclosure proceedings, some of the consequences may include:
- Costs of foreclosure are added to mortgage settlement – You will be liable for any expenses during the foreclosure process. These costs will be added to the amount owed in the mortgage settlement. You will get charged over $200 for foreclosure.
- You may lose your home – If the foreclosure process is completed, you may lose your home.
- Your credit score will be affected – A foreclosure will appear on your credit report and negatively affect your credit score for many years.
- You may have to file for bankruptcy – If you cannot pay the money you owe to your HOA, you may have to file for bankruptcy. It will affect your credit score even more and stay on your credit report for ten years.
If you’re having trouble paying your HOA fees, contact your HOA and see if a payment plan is in place. Many HOAs are willing to work with homeowners to help them get caught up on their payments.