What is an HOA fee and why does it matter?

Quick insights

If you’re buying your first home and it’s part of a housing community, there’s a good chance you’ve stumbled across the term “HOA fee.” It might feel like yet another budget item in a mountain of expenses, but understanding HOA fees is important when it comes to planning your finances to make sure you’re ready for homeownership.

So, what is an HOA fee, and how much will it set you back? Let’s unpack it.

What are HOA fees?

HOA fees, short for homeowner’s association fees, are payments that are made by homeowners who live in properties governed by a homeowner’s association (HOA).

These associations exist to maintain and manage common spaces within a community, whether that’s a condo complex, townhouse development or single-family home neighborhood.

HOA fees are paid monthly, quarterly or annually, depending on the community’s bylaws. These fees fund everything from landscaping in shared areas to keeping the clubhouse and swimming pools in tip-top shape.

You might find yourself debating between neighborhoods with and without homeowner’s associations. It’s important to understand exactly what you’re getting for your money (and exactly what you’re signing up for).

What is the point of an HOA?

The main purpose of an HOA is to create a well-managed, attractive and safe community that retains its property value over time. HOAs often enforce rules, called covenants, that homeowners in the neighborhood agree to follow. These rules could include guidelines on lawn maintenance, exterior paint colors or even holiday decorations.

HOAs also help maintain common spaces, such as playgrounds, parking lots and clubhouses, which everyone in the community can access. This shared upkeep creates a pleasant environment for all residents.

The bottom line is that an HOA exists to maintain the quality of life and property values within the community. While some homeowners may prefer fewer restrictions, HOAs help maintain community standards.

Why do HOA fees exist?

HOA fees cover the costs of maintaining and managing shared spaces and community amenities. Without these fees, the burden of upkeep for necessary tasks like landscaping or snow plowing would fall directly on individual homeowners.  

Let’s say you live in a beautiful neighborhood with tree-lined streets and a community pool. Without HOA fees, who would pay to keep the streets clean or the pool usable? HOAs gather resources from all members so everyone benefits equally.

HOA expenses may also be tied to long-term planning. Many associations maintain reserve funds to cover emergencies, major repairs or large-scale improvements. For example, if a storm damages the roof of the clubhouse, the HOA might be able to draw from its reserves to fix it, rather than springing a surprise bill on homeowners.

What is included in most HOA fees?

So, what do HOA fees cover? The answer, of course, depends on the property. As a general guideline, however, here’s what is typically included:

Average cost of HOA fees

Wondering how much HOA dues will set you back? Again, it depends. The average monthly cost for existing homes in 2024 hovered around $148, which is $77 higher than the average for new homes.

Again, this is because several factors influence HOA fees, including location, property type and community amenities.

Urban areas or high-demand neighborhoods typically have higher fees, as do condominiums, which tend to require more maintenance that results in additional costs. Areas with luxury facilities, such as gated security or state-of-the-art fitness centers, may charge significantly higher fees.

The role of special assessments

While regular HOA dues cover most ongoing costs, some situations require additional expenses. These are often billed as “special assessments.”

A special assessment might occur when an HOA needs funds for an expense that is not covered by its regular budget, like repairing a deteriorated roof or upgrading outdated facilities.

These special assessments can be expensive and unexpected. A single special assessment might range from a few hundred dollars to thousands. The best way to fortify yourself against these surprises is to ask about the HOA’s financial health before buying a home. Find out if the reserve fund is adequate, as this is a key indicator of how likely it is that you’ll face unexpected costs.

How to factor HOA fees into your budget

Buying your first home already comes with a steep learning curve when it comes to budgeting. Forget about HOA fees—most new homeowners are solely focused on their mortgage payment, property taxes and utilities.

But HOA fees need to be factored in, as well, because they can be as little as $50, or more than $2,000 per month, depending on where you live, what type of property you’re buying and the level of amenities provided. It’s important to account for these costs up front, as they tend to be non-negotiable.

As you’re factoring HOA fees into your budget, consider the following variables:

What happens if you don’t pay HOA fees?

Failing to pay HOA fees is a serious matter. Your HOA board has the legal right to enforce payment, and the consequences can escalate quickly. Missing just one payment might result in a late fee or interest charges.

If you continue to fall further behind, the HOA might take additional action. You may find that your access to community amenities like the pool or gym is suspended. The HOA could also file a lien against your property, barring you from selling it. In the most extreme cases, they may initiate foreclosure proceedings.

Because of this, it’s imperative that you understand your HOA’s enforcement policies. These should be clearly outlined in their rules and regulations. Ultimately, neglecting HOA obligations can negatively impact your finances and relationships within the community.

Are HOA fees tax deductible?

Despite all their benefits, HOA fees are considered personal expenses, similar to utilities or home maintenance costs. This means most homeowners cannot deduct HOA fees from their taxes.

There are exceptions. If you own a rental property, you can deduct HOA fees as a business expense because they are necessary for property maintenance. Additionally, if you use part of your home exclusively for business purposes, a portion of the HOA fees may qualify for a home office deduction.

Always consult a tax professional to understand your specific situation and ensure compliance with IRS regulations regarding HOA fee deductions.

In summary

HOA fees might seem like a hassle at first glance. However, they make thriving and well-maintained communities possible. Rather than viewing these fees as just another bill to track, consider them an investment in the comfort, safety and appearance of your future home.

Before you buy a property governed by an HOA, make sure you understand the cost of dues, what they cover and how they might change over time. With some smart planning and a solid grasp of all the costs involved, you’ll be holding the keys to your dream home in no time.