An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Homeowners associations, unlike neighborhood associations, are formal legal entities created to maintain common areas and enforce private deed restrictions (CC&R's). Most condominium and townhome developments and some newer single-family subdivisions have homeowners associations, which are usually created when the development is built.

In any transaction whether it is a purchase or refinance, lenders will require a HOA questionnaire to be filled out by the Homeowners Association. This questionnaire can mean the outcome of your transaction. Sometimes lenders deny loans based on a variety of factors such as the percentage of renters to owners being over a certain percentage, or the association being in legal litigation.

Many lenders require specific insurance policies when dealing with Home Owners Associations. In a large HOA it is not uncommon for the association to keep reserves of $50,000 or more, so many lenders require employee fraud coverage to protect from embezzlement.

Home Owners Associations often have an annual or monthly fee that must be paid. This fee is also considered when calculating your total monthly housing expense, your debt to income ratio and other factors for a loan approval. Home Owners Association fees can vary greatly from a $100 a year to $100 per month.

You must ask yourself if you really want to be part of an association. There are usually rules and regulations that you have to abide by. Ask yourself if you can live with these rules and not have any problems.

A community with a homeowners association is also referred to as a deed restricted community. Deed restrictions are put into place to help maintain the quality of the neighborhood. Common restrictions are color/type of fence, lawn care and exterior color of the house to name a few.

HOAs can be good news or bad news depending upon your individual situation and preferences. In general, the regulations are designed to maintain a certain level of appearance and neighborhood "feel." Examples would be regulations regarding maintenance of yard, parking of recreational vehicles in the yard, approval of any exterior additions to home, etc. Some can be a bit too much but, in general, they do help maintain property values. On the other hand, if you do want to park your RV in your driveway and have a pool in your front yard, barking dog tied up outside all day, or just don't want anyone telling you how you may use your property, do avoid developments with an HOA. In any event, always ask for and read the regulations before even considering making an offer on a home. Ask questions of the HOA president; look at their financial status, talk to other residents if possible.

Home Owner Associations decide whether one can buy into the development. Condominium and Cooperative buyers must be approved by the HOA before they can purchase any unit in the development. Approval is contingent upon the applicants' incomes and number of occupants, among other criteria.

Most condominiums do not require pre-approval of the purchaser whereas cooperatives almost always do.

In some cases, HOAs will negotiate a lower fee for it's members for garbage pick up, cable TV, or some other utility.

If the property that you are buying is under the jurisdiction of a Homeowner's Association, the mortgage lender may want to review a copy of the CC&Rs of the association. CC&Rs stand for Convenants, Conditions and Restrictions.

An HOA will often provide benefits such as a clubhouse, a community swimming pool or park, maintenance and lawn care.

 

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