What Is an HOA and How Does It Work?

One thing to keep in mind when shopping for a mortgage is whether your new home will be part of a homeowners association (HOA). An HOA sets rules that all property owners in the association must follow, and each owner pays monthly or yearly dues that help maintain the community. Some people love the structure and security of an HOA, while others chafe at the list of restrictions they must comply with.

What is an HOA?

A homeowners association is just that: a group of homeowners who each own property in a particular neighborhood, condominium, co-op, or subdivision. As an HOA, these homeowners set the rules and regulations that govern the use and management of the property, including common areas. They also charge fees that cover some maintenance costs and other expenses.

Regardless of whether you’re buying a condo or a house, you’ll need to find out whether there’s an HOA and what it entails.

How does a homeowners association work? 

An HOA is the governing body for a housing community where the residents have a common interest in preserving property values, aesthetics, and quality of life. The residents run the HOA, pay into the organization, and follow its rules. Not every community has an HOA. However, if you want to buy a home in one that does, you usually have to join the HOA, too.

HOAs use covenants, conditions, and restrictions (CC&Rs) to enforce what’s acceptable and what isn’t. CC&Rs might regulate design changes, landscaping, or other aspects of the property. 

For example, the HOA might stipulate in its CC&Rs that you must use one type of fencing, a certain species of shrub, or a limited range of exterior paint colors. If you break the restriction and go rogue (say, by planting an azalea instead of a rhododendron), the HOA might remind you of your signed, legally binding agreement that states you’ll abide by HOA regulations. If you don’t pull the azalea and replant with a rhododendron, the HOA could fine you for breaking the restriction. If you refuse to pay the fine, you could face a lien on your property until the fine is paid.

Not every HOA will be so picky; some homeowners associations are less concerned with uniformity and more focused on preserving high property values and creating a pleasant place to live.

Some aspects you can expect an HOA to cover include:

• Maintenance: HOAs often take responsibility for maintaining common areas, such as workout centers, pools, or elevators. They might also set rules about trash pickup or snow removal. 
• Enforcement: In addition to setting the rules, the HOA is also responsible for enforcing them. Residents who violate an HOA restriction will likely face fees, fines, or forced compliance. 
• Fees: Each member of an HOA must pay their HOA dues, which help to cover the costs of upkeep for common areas.
• Budgets: HOAs are responsible for setting and sticking to a monthly or annual budget that oversees the use of the fees they collect.

When you’re shopping for a home that’s part of an HOA, find out exactly how it works. 

“Ask specific questions about how the association is governed, what they govern, how finances are handled, what fees cover,” said Nicole Beauchamp, senior global real estate adviser and licensed associate real estate broker at Engel & Völkers. 

Homebuyers should also find out “what role they have in purchases/sales/leases, what responsibilities pertain to the association versus an individual owner, what actions or decisions require approval by the association, and how long these processes take,” Beauchamp said. After all, you can’t just opt out of the HOA once you’ve bought the home. You’ll need to be sure you can live by its rules.

What are the pros and cons of an HOA? 

Homeowners associations can offer a ton of amenities and benefits, but they’re not for everybody.

“HOAs wield various powers that impact homeowners' lives,” said Tarek El Ali, founder of Smart Insurance Agents. “While some homeowners appreciate the sense of order and aesthetic uniformity an HOA provides, others might find these regulations overly restrictive.” 

Take a look at some of the pros and cons of an HOA:

What do HOA fees include? 

To provide for all the benefits they offer, HOAs must charge fees, sometimes called assessments or HOA dues. HOAs usually charge these fees monthly, quarterly, or annually. This is true no matter what type of home is in the HOA (townhouse, condo, co-op, or single-family home).

The national average for HOA fees is $191 per month, with average costs in major metro areas ranging from $100 (Dallas) to $650 (New York City). In some places, HOA dues can exceed home utility costs. 

HOA dues typically cover operating expenses and upkeep, which can include:

• Property management
• Neighborhood landscaping
• Community amenities, such as pools and tennis courts
• Utilities, such as electricity for lighting and air conditioning for common areas
• Security services
• Concierge services
• Liability insurance (to protect the association in the event of a lawsuit)
• Staffing, such as to run the amenities and provide maintenance and repair services
• Reserves to fund major projects such as road work

Is a homeowners association right for you? 

Whether you buy a home that’s part of an HOA will depend on your personal needs. HOAs are convenient because they handle many of the maintenance tasks that you’d otherwise need to tackle yourself. They also ensure that your neighbors won’t let their yards get overgrown, install tacky holiday decorations, or blare rock music at 3 a.m. 

However, the same restrictions that keep other homeowners on their best behavior will apply to you, too. You won’t have full autonomy to do what you like with your property because you’ll need to make decisions with your HOA’s CC&Rs in mind. It all comes with a price tag, too, which can make your monthly housing costs more expensive — and with inflation, your HOA fees are likely to rise over time.