But everyone’s heard their share of HOA horror stories. Nitpicking neighbors, outrageous fees, and dysfunctional meetings are just a few of the woes that an HOA can bring your way.
So, should you join an HOA, or stay away? Here are a few factors to consider if you’re currently in the market for a new home and not sure if an HOA is a green light or red flag.
When it comes to HOAs, there are pros and cons to both being in one and not being in one. Here are some of the pros of being in an HOA…
You have access to amenities that you may not have otherwise. This can include things like a pool, a clubhouse, or even just a nicer street.
Rules and regulations of the HOA can help keep your neighborhood looking neat and trim and boost the value of your home—single family homes under HOAs sell for 4% more than the market average.¹
HOAs can often enforce rules more effectively than individual homeowners. That can be helpful if you have a problem with neighbors who are damaging property values.
HOAs can have substantial value. One survey found that for every dollar of fees, an HOA brought $1.19 of benefit.²
But HOAs aren’t all flowers and sunshine. Here are some of the cons of being in an HOA…
HOA fees can be expensive. Yearly fees range from $1,000 to $10,000, which can put certain homes out of your price range.
HOAs can nitpick trivial things, like the color of your house or the kind of plants you put in your yard. There are few things worse than having someone else tell you how to decorate the home you’re making mortgage payments for.
HOAs can be toxic. Like all organizations, HOAs are subject to corruption. Board members can be aggressive and narrow minded, chairmen can become tyrants, and neighbors can be selfish. Rest assured, there’s almost nothing worse for homeowners than getting stuck with a toxic HOA.
HOAs can be useless. There’s nothing worse than an organization that demands money and then doesn’t do anything. In some cases, HOAs fail to enforce rules or regulations, making them little more than a money-sucking black hole.
The key takeaway is that a healthy HOA can be a benefit, while a toxic HOA is a massive liability.
How can you tell the difference between the two? First, check out the quality of the other homes. Are they well maintained, or falling apart?
Second, review the covenants, conditions, and restrictions (CC&R). These are the rules and regulations you’ll have to follow if you move into the neighborhood. If you see anything outrageous or suspicious, ask about them.
Finally, talk to your potential neighbors. Are they happy with the HOA? If not, why? Their answers may be trivial—or they may reveal significant issues.
HOAs can be a great way to maintain property values and improve your quality of life. But they can also be expensive, time consuming, and even toxic. So do your homework before you buy a home in an HOA neighborhood, or you may regret it later.
“HOA Pros and Cons for Homebuyers: Rules, Fees, and Perfect Lawns,” Valerie Kalfrin, HomeLight, Dec 23, 2019, https://www.homelight.com/blog/buyer-hoa-pros-and-cons/
But sometimes it might seem more convenient (or economical) to rent rather than buy. Here are two things to consider if you’re looking to buy a house instead of renting.
How long will you live in the house?. When you own a home, the hope is generally that it will increase in value and that you would be able to sell it for more than you bought it. The best way to do that is to plan to stay in your house for the long haul. So if you’re looking to remain in an area for a while and put down roots, buying a house is a strong consideration.
But let’s face it, not everyone is in that position. Maybe you’re young and hopping from opportunity to opportunity. Perhaps your job requires you to travel frequently or change locations. You might just prefer discovering new, exciting places and not being tied down. Unless you plan on renting out your property, it may not make sense for you to buy. Renting might give you more flexibility to move about as you please!
Can you afford to buy a house? So you want to settle down in a city or a certain neighborhood for the foreseeable future. Does that automatically mean you should buy a house?
Well, maybe not.
You simply may not be able to afford a house right now. Do you have significant debt in student loans or a car? Have you been able to save up enough for closing costs and a down payment? Mortgages might be cheaper than rent at certain times, but that might flip-flop before too long. Are you ready to maintain your house or pay for unexpected damages? These are all questions to ask before you decide to become a homeowner.
Still weighing your homeownership options? Let’s talk. We can review your situation and see if now is your time to buy!
2020 witnessed home prices soar by 15% to average more than $320,000–a prohibitive price for many seeking to buy their first house.¹
But even if you aren’t ready to buy a house today, there are steps you can take now that may better position you to become a homeowner in the future!
Build your emergency fund. An emergency fund is a critical line of financial defense that can help lay the foundation for buying a house. That’s because an emergency fund provides a cash cushion while you prepare to purchase your home and then begin paying off your mortgage. The unexpected expenses of homeownership can be far less detrimental to your long-term goals when you have a dedicated fund specifically designed to cover emergencies!
Increase your credit score. An excellent credit score is imperative for first time home buyers for two reasons…
First, actions that increase your credit score–debt management and paying your bills on time–can help create a solid financial foundation as you shoulder the responsibility of servicing a mortgage.
Second, lenders typically offer more favorable loan terms to people with high credit scores. That can result in more cash flow over the life of your mortgage. A recent survey discovered that mortgage holders with very good credit scores save more than $40,000 over the lifetime of their loan!²
Take steps to boost your credit score before you start house hunting. Automate your bill payments so they’re always on time, and begin reducing the balances on your credit cards, student loans, and auto loans!
Start saving for your down payment ASAP. Aim to have a down payment of at least 20% of your future home’s value saved before the home buying process begins.
Why? Because paying more up front and borrowing less to buy your home reduces the interest you’ll owe over the long-term. A substantial down payment might also lower the price of closing costs and negate your need to buy private mortgage insurance. Usually, the higher your down payment, the better!
The time to lay the groundwork for buying your first house is now. Build an emergency fund, increase your credit score, and save enough for a significant down payment. Then, search for a house that meets your needs and won’t break the bank!
¹ “U.S. home prices hit a record high in 2020. Is home buying still affordable?,” Peter Miller, The Mortgage Reports, Oct 13, 2020, https://themortgagereports.com/70539/record-high-prices-record-low-mortgage-rates-during-covid#:~:text=Home%20values%20and%20sales%20prices,on%20record%2C%E2%80%9D%20says%20Redfin.
² “Raising a ‘Fair’ Credit Score to ‘Very Good’ Could Save Over $56,000,” Kali McFadden, LendingTree, Jan 7, 2020, https://www.lendingtree.com/personal/study-raising-credit-score-saves-money/