Are HOA Fees Included in Mortgage? How do HOA Fees Affect the Home Buying Process?

Are HOA Fees Included in Mortgage

If you are planning to buy an apartment or a condo then you might be familiar with the term HOA fees. HOA is a type of fee that you have to pay when you become an owner of a condo. HOA fees are not included in the mortgage. You have to pay the HOA fees directly to the homeowners association. Though HOA fees are not included in the mortgage but you have to consider them as a part of your housing cost. Moreover, HOA fees also impact how much money you can borrow to buy money.

What is an HOA Fee?

HOA stands for homeowners association and it is a self-governing organization that makes and enforces rules for a condominium building. One key objective of HOA is to keep property values high. If you want to buy a condo that is a part of HOA then you have to pay fees that could be monthly, quarterly, or annually. HOA fees are totally separate from other fees therefore when you buy a condo you have to pay other fees like property taxes, property insurance, and monthly mortgage payments. HOA association charges HOA fees to cover the maintenance cost and keep the community secured. Melissa Tucci a top-ranked real estate agent says –

“Make sure to look at the rules and regulations and educate yourself. Find out about the reserve, make sure the HOA is well funded, and make sure it’s not in litigation and that there are no lawsuits against the HOA,”

How does an HOA Work?

Usually, an HOA association is run by a board of directors. Here the directors are resident homeowners of the community and they are elected by the community members. Every HOAs have its own bylaws and according to these bylaws, the board of directors makes and implements rules for homeowners who live in the community. AS a member of the HOA association, you can elect board members and ask the board members to review and change a rule that might be creating problems for the community. Under an HOA, you will have full control over your house and the inside but the HOA will control exterior maintenance and changes. Moreover, an HOA has the legal right to raise fees, enforce new rules, etc.        

Common HOA Duties and Services

The main duty of an HOA is to manage the community, provide security and service to its members and enforce various rules. Some common duties and services of an HOA are –

Maintenance Services: An HOA offers various maintenance services like they remove the trash, and taking care of the lawn and other landscaping where development is ongoing. Usually, the maintenance services offered by HOAs vary from one HOA to another; for example, some HOAs offer repair services for condo building roofs, fences, and communal streets.

Insurance Policies: HOAs offer various insurance policies that cover liability and repairs for common areas. So, it means you might have to pay less for your property insurance.

Amenities: Many HOAs offer exclusive amenities to their residents like a clubhouse, a swimming pool, a fitness center, or a co-working area. Having these types of amenities will increase the HOA fees.

Establishing Community Rules: This is a very important duty of an HOA. Each HOA makes and implements community rules that every resident of that community has to abide by. For example, HOA can set home maintenance rules like how high you can keep the grass so that the community continues to look cohesive. Moreover, an HOA also limits your ability to rent your home to tenants.

How do HOA Fees Affect the Home Buying Process?

HOA fees can affect your ability to buy a house. If you have to pay the HOA fees then it will increase the property value and if you are tight on budget then it can create a big problem for you. If you have to pay a large amount of HOA fees then it will increase your income to debt ratio and you will find it very difficult to qualify for a mortgage with a lower interest rate. Moreover, if you fail to pay the HOA fees regularly then it will also violate the terms of your mortgage which will lead to various problems. This is what Jennifer Hernandez, a senior loan officer at Legacy Mutual Mortgage says about HOA fees –

“We have to take those fees every month to use as a person’s payment for qualifying; so, it doesn’t matter whether the homeowner’s fee is paid annually or quarterly, we still have to divide it to get it monthly and use it as a mandatory portion of their debt-to-income calculation. We’ve got to catch that kind of stuff upfront because it can make or break the chance of buying a house.”

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Therefore it is best for you to contact your mortgage banker and find out everything about the HOA fees and how much effect the HOA fees will have on your home buying process. This way you will be able to avoid unwanted problems.

Consequences of Not Paying the HOA Fees

If you stop paying the HOA fees or if you aren’t able to pay the HOA fees then the homeowners association can take several steps against you. Some common states that an HOA can take against you are –

  • They will send a demand letter for past fees
  • HOA might restrict your ability to use various amenities like parking, gym, etc.
  • HOA can offer a new repayment plan that you have to maintain
  • They might file a lawsuit in small claims court
  • They might file a lien against your property
  • A homeowners association can pursue a foreclosure

Advantages and Disadvantages of Buying Property in an HOA community

It will increase the value of your propertyYou have to pay HOA fees that can increase with the times
Services and amenities offered by the HOA community will keep the property value strongAn HOA implements various types of rules that might reduce your freedom
HOA provides various community amenities like a playground, gym, parlor, swimming pools, etc. If you need a major repair then you might have to ask for permission from the HOA
Many HOAs provide various services like trash collection, snow removal, common maintenance service, etc.If you don’t pay the HOA fees in time then HOA can take legal action against you
An HOA can provide aid to resolve disputes between neighborsIf you don’t follow the HOA rules or break any rules then HOA can also take legal action against you.

FAQs about Are HOA Fees Included in Mortgage? How HOA Fees Affect the Home Buying Process

How does HOA affect mortgage?

There are many ways HOA fees can affect your mortgage. One important bad impact of HOA fees is they can increase your debt-to-income ratio and affect the mortgage. Moreover, if you qualify for a mortgage, then a large HOA fee will make your mortgage smaller than what you would need.

Is HOA included in the debt to income ratio?

Yes, HOA is included in the debt-to-income ratio. Some common examples of debt to income ratios are property taxes, homeowner’s insurance, monthly mortgage payment, etc.

Are HOA fees tax deductible?

No, HOA fees are not tax-deductible. So it means, you won’t be able to deduct the HOA fees from your taxes. But if you have rented the property and paying the HOA fees then you will be able to deduct HOA fees.

How much HOA fee is too much?

Usually, the HOA fee can vary from $100 to $500 a month. However, the HOA fee can be as high as $2000 per month. Usually, the HOA fees depend on the type and quality of the amenities that the association is providing to its residents.


Last Updated on August 7, 2022 by Ana S. Sutterfield

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