What Is An HOA In Real Estate?

According to Real Trends, homeowners spend more than 120 hours on average looking for a home. During this search, they are bound to come across something called an "HOA" many times. But what are they? The easiest way to learn is to put yourself in the shoes of a new homeowner, so picture this:

Buying and owning a house has been your dream for years. You do your job well, build your savings and finally, after years of hard work, you are almost at the finish line of buying your very own home. This is the moment you decide what you need from your new home. You start with the house itself — how big you want it to be, the number of rooms, its aesthetics, and amenities. Then you figure you also want a safe neighborhood where everyone looks out for each other. You want to make sure your house won't turn into a bad investment and the property value stays the same, and you want the public areas around your home to be maintained and kept beautiful.

If this is you, then what you are looking for is an HOA!

What is an HOA?

In certain residential areas, private groups known as homeowners' associations (HOAs) are responsible for the day-to-day operations. HOAs develop a set of rules and regulations for the residents of the community to follow. They are not corporate entities run by suits, but are managed by regular residents in the neighborhood, usually unpaid volunteers according to Bankrate. They're most commonly found in charge of planned communities, townhouses, and multi-unit apartment complexes or condominiums, all of which have shared interests.

As you can probably guess, there are both advantages and disadvantages to living in a HOA-run neighborhood. You may not be able to do everything you want with your property, but the restrictions in place are meant to protect the area and keep property prices stable for everyone (via RISMedia). HOA fees are also used to maintain the neighborhood's common amenities and make it pleasant to residents, as well.

Rules of a Homeowners Association

Before you sign up with an HOA community, it might be best to learn what kind of rules and regulations they have because, depending on what you are looking for, they can be a blessing or a curse. These rules aren't exhaustive but there are some common ones you will come across.

By far, the most common is structural limits such as a ban on certain architecture or a need for a specific style of fence. A garage or shed may also have restrictions on its size and location. Your paint colors might need to be approved by the HOA board before they can be used in your home as well, as this has to do with keeping a uniform style for your neighborhood. 

According to Fortune Builders, a typical rule (and often a dealbreaker) for most homeowners are the regulations related to pets like restrictions on the kind and numbers of animals you can own. The other, almost universal, feature is paying your HOA fees on a regular basis. It's best if you can set aside some money because you probably will not get to skip this rule without some consequences.

HOAs and Fees

Like we mentioned earlier, fees are an important consideration if you are considering buying into an HOA neighborhood. Depending on the location and the facilities that are offered, the fees might vary greatly (via HOA Management). Make sure your monthly contribution is within your means by finding out in advance how much it will cost; talking to the neighbors is a good way to learn about the HOA and their fees. Your HOA costs cover a wide range of services depending on where you live and the facilities that are included in your community, from trash pickup to security.

Before purchasing a property in an HOA neighborhood, the smart thing to do is make sure you account for any prospective HOA fees as part of your monthly budget. At closing, you'll also have to pay your down payment, which your lender will tell you how much you need to bring with you. As part of your mortgage payment, you'll learn how these costs will be computed on an ongoing basis or if you'll be forced to pay a single sum in January of each year.

All that being said, there's really only one piece of advice that truly matters when it comes to HOAs: check the benefits, drawbacks and expenses, then choose what works best with what you need.