Imagine you’ve just toured a beautiful home in a near-perfect neighborhood. Every lawn is freshly cut and the homes all fit neatly together like puzzle pieces. There’s even a community pool and clubhouse you can use for special events.

You’re just about sold—then your agent says something about a “homeowners association.” You’re not entirely sure what that means. Is that good or bad? And how will it impact your home financing? Let’s take a closer look.

HOAs, Defined

A homeowners association, or “HOA,” is an organization that manages and maintains a community of homes. They’re found in many neighborhoods across the country, especially in planned developments, townhome complexes, and condominiums.

The main purpose of an HOA is to maintain shared spaces and protect property values. Think about all the parts of a planned community that everyone uses, but no one homeowner owns—such as the landscaping, sidewalks, pools and playgrounds. The HOA makes sure these amenities stay clean, safe, and in good condition.

Most HOAs are created by a housing developer and later turned over to homeowners once the neighborhood is built. From there, the HOA is usually run by an elected board of volunteer residents. Some HOAs hire professional management companies to handle the day-to-day operations, while others remain entirely self-managed.

What to Expect as a Homeowner

The biggest thing to know about HOAs is that you’ll pay periodic dues, and the amount varies depending on the community and the services provided. These funds cover things like maintenance, insurance, and utilities for shared areas. A portion usually goes into a reserve account to pay for larger future repairs, such as repaving a private street or replacing a clubhouse roof.

When you buy a home in an HOA, you also agree to the rules that come with it. Every HOA has its own set of guidelines, called Covenants, Conditions, and Restrictions, or CC&Rs. These documents spell out what you can and can’t do with your property.

Many HOAs have fairly simple rules, like keeping your yard tidy or storing trash bins out of sight. Others can be stricter, dictating what color you can paint your front door, how high your fence can be, or where guests can park.

The goal of these rules is to maintain a consistent neighborhood appearance, which helps protect property values. Still, before you buy, it’s smart to review the HOA’s rules and guidelines to make sure you’ll be comfortable living under its conditions.

How an HOA Impacts Your Mortgage

When you apply for a mortgage to buy a home in a neighborhood with an HOA, your lender will factor the HOA’s dues into your debt-to-income (DTI) ratio to make sure you can afford them. If you’re already stretching your budget to purchase a home, a high HOA fee could reduce the amount you’re able to borrow.

Your lender will also review the HOA’s budget, insurance policies, and reserve funds to confirm that the community is well maintained and managed. If the HOA has a history of unpaid dues, ongoing legal disputes, or a low reserve balance, it can raise red flags and possibly derail the closing.

That’s why it’s smart to get your hands on the HOA documents early in the process and review them carefully. Your agent or lender can help you request them from the seller or property manager. Reviewing these documents can help protect you from surprises, such as needed repairs that have been put off, which could result in special assessments for deferred maintenance.

The Bottom Line

Living in a community with an HOA can offer real advantages, but it’s important to go in with your eyes open and ask plenty of questions.

The loan experts at Right By You Mortgage can help you do exactly that. They’ll walk you through the numbers and help you plan ahead, so you can buy with confidence—whether your perfect home is in an HOA or not.

Have more questions about financing a home in an HOA? Find a local loan expert or drop us a note at inquiries@rightbyyoumortgage.com to learn more.