Homeowners association fees can affect both your monthly budget and the mortgage amount you qualify to borrow. The fees may pay for shared maintenance, insurance, amenities, management, and long-term repairs. What they cover depends on the community.
A low purchase price does not always mean a low housing expense. A condo or house with substantial association dues can cost more each month than a higher-priced property without an HOA. Buyers should review the fee, association finances, and community rules before making an offer.
What Are HOA Fees?
HOA fees are payments required from owners in a community governed by a homeowners association, condominium association, or similar organization. The association collects the money and uses it to operate and maintain shared property.
The amount can be collected monthly, quarterly, or annually. Some communities have a modest fee for entrances and common landscaping. Others have larger dues because the association maintains building exteriors, roads, utilities, insurance, elevators, pools, or other facilities.
The community’s declaration, covenants, bylaws, budget, and fee schedule explain the owner’s responsibilities. By purchasing the property, the buyer normally agrees to follow the rules and pay the required assessments.
What Do HOA Fees Usually Cover?
Coverage varies by community. Fees may help pay for:
- Landscaping and snow removal in shared areas
- Exterior maintenance for certain buildings
- Private streets, gates, lighting, or sidewalks
- Community pools, fitness rooms, or clubhouses
- Trash, water, sewer, or other shared utilities
- Association management and legal expenses
- Master property or liability insurance
- Contributions to a reserve fund
A reserve fund is money set aside for major future expenses. Fannie Mae describes it as a shared savings account for large community costs, such as replacing a condominium roof.
Do not assume a service is included because another nearby association provides it. Ask for a written list of what the dues cover and which expenses remain the owner’s responsibility.
Are HOA Fees Included in the Mortgage Payment?
HOA dues are usually separate from the payment made to the mortgage servicer. The CFPB explains that association dues are generally paid directly to the HOA rather than included in the monthly mortgage payment.
Your complete monthly housing expense may include the mortgage principal and interest, property taxes, homeowners insurance, mortgage insurance, flood insurance when required, and HOA dues. The association fee must be included in the household budget even when it does not appear on the mortgage statement.
Some servicers may allow HOA dues to be included in escrow, but this is not common. Confirm how the fee must be paid, when it is due, and whether automatic payment is available.
How Do HOA Fees Affect Mortgage Qualification?
The lender includes required association dues when reviewing the buyer’s ability to repay the mortgage. Federal mortgage rules define recurring HOA fees and certain special assessments as mortgage-related obligations.
The fee becomes part of the housing expense used in the debt-to-income calculation. A higher association payment can reduce the mortgage amount a buyer qualifies to borrow.
Assume two homes have similar taxes, insurance, and loan terms. One has no HOA, while the other requires $350 per month in dues. The buyer must qualify for that additional $350 obligation, even though the money is paid to the association instead of the mortgage company.
This does not mean a home with an HOA is unaffordable. Some dues replace costs the homeowner would otherwise pay directly. The buyer still needs to compare the complete monthly expense and confirm that the included services provide enough value.
What Is a Special Assessment?
A special assessment is an additional charge used for an expense that is not fully covered by the regular budget or reserve fund. Examples may include major roof repairs, storm damage, structural work, pavement replacement, or an unexpected insurance increase.
The assessment may be due in one payment or spread over several months or years. A recurring assessment that continues after closing may need to be included in mortgage qualification.
Ask whether any special assessment has been approved, proposed, discussed, or recently completed. Also confirm who is responsible for the remaining balance under the purchase agreement. A seller paying the current assessment does not prevent another assessment from being approved later.
The Association Can Affect Condo Financing
When purchasing a condominium, the lender may need to approve both the borrower and the project. A financially qualified buyer can still encounter a problem if the condominium project does not meet the mortgage program’s requirements.
Depending on the loan and project, the lender may review the association’s budget, reserves, insurance, owner delinquencies, structural condition, commercial space, ownership concentration, litigation, and other risks. Fannie Mae explains that lenders may evaluate the community’s physical condition, financial stability, structural concerns, inspections, and major lawsuits.
This review can require information from the association or its management company. Buyers should begin the condo-review process early because slow responses or incomplete records can delay the mortgage.
Understand the Association’s Insurance
A condominium association may carry a master insurance policy for the building and common areas. That policy may not cover everything inside the unit or all improvements made by the owner.
The buyer may need a separate unit-owner policy, commonly called an HO-6 policy. The insurance agent should review the master policy and explain what coverage the buyer needs for the interior, personal property, liability, deductibles, and loss assessments.
Fannie Mae notes that insurance responsibility may be divided between the association and the individual unit owner. Do not rely on the monthly dues alone to determine whether enough insurance protection is in place.
Pros and Cons of an HOA Community
Potential advantages
An HOA can provide consistent maintenance of shared areas and establish standards for the community. Condo associations may also handle exterior repairs, lawn care, snow removal, and amenities that the owner would otherwise manage.
Shared maintenance can be useful for buyers who want less direct responsibility for exterior work. Rules may also help maintain a consistent appearance throughout the neighborhood.
Potential drawbacks
HOA dues increase the monthly ownership cost and can rise over time. Owners may also face special assessments when reserves are insufficient or a major repair is needed.
Community rules can limit exterior changes, parking, pets, rentals, landscaping, and other property uses. Unpaid dues or rule violations can also lead to fees, collection activity, or other remedies allowed under the governing documents and state law.
What Should You Review Before Buying?
Request the current budget, recent financial statements, reserve information, insurance summary, governing documents, meeting minutes, fee schedule, and information about special assessments. For a condominium, ask whether any required inspections, repairs, or insurance changes are pending.
Meeting minutes can reveal concerns that are not obvious from the current fee. Look for discussions about roof replacement, structural repairs, insurance deductibles, lawsuits, owner delinquencies, or proposed increases.
Your rights and review period depend on the property, contract, and applicable law. Work with your real estate professional or attorney when interpreting association documents.
Who Should Pay Special Attention to HOA Fees?
HOA fees deserve extra attention from buyers near their maximum qualifying amount. Even a modest increase can affect qualification or make the monthly budget uncomfortable.
They are also important for buyers considering condos, townhomes, retirement communities, gated neighborhoods, or properties with extensive shared amenities. Investors should review rental restrictions, occupancy limits, lease requirements, and any owner-occupancy rules.
The Bottom Line
HOA fees can pay for valuable services, but they are still part of the cost of owning the home. The lender includes required dues when reviewing mortgage qualification, and the association’s financial or physical condition may affect condo approval.
Capital City Mortgage helps Nebraska buyers calculate the complete housing expense before making an offer. We can review the mortgage payment, taxes, insurance, HOA dues, special assessments, and project requirements through multiple lenders. A thoroughly prepared preapproval should reflect the actual property costs, not the purchase price alone.
Frequently Asked Questions
Are HOA fees included in my monthly mortgage payment?
Usually not. HOA dues are generally paid directly to the association. The lender still includes required dues when reviewing your housing expense and ability to qualify.
Do HOA fees affect how much mortgage I can qualify for?
Yes. Required HOA dues are included in the housing expense used for mortgage qualification. A higher fee can reduce the loan amount supported by your income and other debts.
What is an HOA special assessment?
A special assessment is an additional charge for an expense not fully covered by regular dues or association reserves. It may be collected at once or through recurring payments.
Can an HOA prevent a condo from qualifying for financing?
The association does not directly approve the buyer’s mortgage, but project problems can affect loan eligibility. Lenders may review finances, insurance, structural concerns, litigation, inspections, and other project risks.
