What Is A Homeowners Association (HOA)? Meaning, Rules And If It’s Right For You

If you’re shopping to buy a home in a community that has a look of uniformity, such as consistent signage, exterior paint coloring, tidy landscaping and a central clubhouse with a swimming pool, chances are good that this is a development with a homeowners association (HOA).

Lots of residential communities have an HOA and each has its own rules, some more beneficial than others, some more contentious. In fact, most homeowners in an HOA both enjoy their HOA and complain about it at the same time. Let’s look at what an HOA does, how it can work both for and sometimes against you and why it’s so common among American housing communities and neighborhoods.

What Is An HOA And How Does It Work?

Since it’s called a homeowners association, an HOA is just that: A formal organization made up of all the homeowners in its community. This can be a group of condominiums, townhouses or individual homes that share some common spaces, landscaping and snowplowing services, maintenance and more.

An HOA is governed by a legal document known as a Declaration of Covenants, Conditions and Restrictions (CC&R). If you buy a home in a community governed by the HOA, you are required to abide by these guidelines. You agree to pay a monthly association fee to cover shared services. You also become a voting member of the association and are eligible to serve on its board.

Aside from collecting monthly fees to help manage the community, the HOA also has interest in maintaining and increasing property values. It sets rules for what members can and can’t do and standards for what properties look like, with the idea that if all properties reflect a certain standard, then all maintain value together.

The HOA is typically formed by the developer and his initial investors and is eventually handed off to the homeowners, who form a board, set the rules and collect fees. As new homeowners move in, they are immediately made voting members of the association.

What Rules Does A Homeowners Association Enforce?

The Covenants, Conditions and Restrictions (CC&R) of the HOA are meant to provide a framework for not only what members can and can’t do with their physical properties, but also the behavior of members and their guests. Rules can be amended and/or eliminated based on normal board activities and member voting. While aesthetic changes to home interiors are pretty much off-limits to HOA regulation (structural work such as electrical or plumbing will likely need HOA approval), virtually all the exterior and common areas of the community are governed under the following broad categories:

Home Exteriors

• Exterior paint colors
• Siding materials
• Roofing materials
• Fence height and materials
• Landscaping
• Gutters
• Mailbox
• Deck/patio
• Holiday decorations
• And more

Renovations And Additions

As noted, while your HOA cannot dictate aesthetic interior decoration choices, such as paint, carpet, countertops and fixtures, any major interior renovations will likely need approval. Anything that involves moving or removing walls, replacing tilework, wiring or plumbing has the potential to affect other properties and is in the interest of HOA members, especially in multiunit buildings.

Any addition to your home would receive even more scrutiny and a more complex approval process. In some cases, an HOA might specifically ban the addition of square footage to your home.

Before starting any renovation, you’ll want to get ahead of your HOA’s concerns by preparing a proposal. Regardless of how much detail you provide, however, expect that your HOA board will have questions and likely set up a follow-up meeting before final approval. Here are some of the issues you should anticipate before the first hammer swings:

• What is the project timeline, including start date and estimated end date?
• The type of work and its effect on common property
• Will the project require a dumpster, and for how long?
• Do you have reputable contractors who are licensed, bonded and insured?
• Time of day when work will begin and end
• Types of materials to be used in the project
• Have you obtained all local building permits?

Renting Out The Home

One of the primary goals of a homeowners association is maintaining a clean, orderly neighborhood of friendly, long-term residents. A significant threat to this goal, then, is renters. While not all bad, renters tend to have less skin in the game than the homeowners around them. After all, they do not own the property and are less likely to understand the HOA rules.

HOAs can and do place restrictions on how you rent your home, including who you rent to, for how long or even if you can rent at all. Different states have their own laws guiding how far an HOA can go in restricting a homeowner’s freedom to use their property as they choose, as do the HOAs within those states, but they usually take the form of a rental cap and/or lease restriction.

By placing a rental cap on its community, an HOA does not outright ban renting, but instead caps the number of units than can be rented at one time (typically around 20%). Once the association is capped out on renters, the next person who wishes to rent must wait until a renter leaves. There may also be a rule saying you must live in your home for one year before being allowed to rent. This helps cut down on investors who seek to own and rent multiple properties.

Lease constrictions can cover a lot of provisions, but many establish that the renter must uphold community rules and standards, or the homeowner might be held accountable. Another common restriction states that the lease must be for a minimum length of time (say 30 days), with the goal of keeping the property from being used as a vacation rental.

Miscellaneous Regulations

If you’re considering buying a home in an HOA, you might pay special attention to the caps on behavior. As an HOA goes on, and particularly if it has a regulation-heavy board, the list of do’s and don’ts can only grow. These regulations can tell you a lot about the types of neighbors you’ll be inheriting and whether this is a place where you can relax and feel welcome.

• Behavior and usage of common areas, covering food and drink, late night hours, alcohol, language and pets
• Pet behavior, such as picking up after pets, leash rules, barking, etc.
• Noise levels both at your home and in common areas
• Limits on the number of guests (such as at a party), or the number of overnight house guests
• Earliest time trash can go out and latest time empty can must be brought in
• Use of your property as a business (almost always banned) or for hobbies, such as overhauling a vehicle on your driveway

HOA Fees

HOA fees are often significant. Most are in the $200 – $300 per month range, which for many people is similar to their car payment. And this is a nonequity expense, meaning it does not apply to the principal on your mortgage and you’ll still have to pay the fee even if your mortgage is paid off.

The average monthly HOA fee in the U.S. is $191, according to the U.S. Census Bureau’s 2021 American Housing Survey. But if your property value is very high and your home is in an upscale location, the HOA fee can be much higher, sometimes even a $1,000 per month or more.

The HOA fee covers the cost of shared amenities, such as landscaping, snowplowing, trash pickup, maintenance, security and more. At times your HOA board may vote to raise the monthly fee due to inevitable rising costs. A part of your fee may contribute to a reserve fund that is held by the board for emergencies and/or larger projects such as road resurfacing.

Special Assessments

The second type of fee increase is what’s called a one-time special assessment, which includes funding for projects that are outside the typical scope and therefore aren’t covered by the annual dues. Each state has different HOA guidelines, but in many cases the board may legally assess a one-time fee without a membership vote. Special assessments would cover things above and beyond normal maintenance, such as installing a pool or a total renovation of the clubhouse kitchen.

Pros And Cons Of Homeowners Associations

How To Decide If You Should Buy A House With An HOA

Especially if you’ve never owned a home or lived under the rules of an HOA, there are a number of factors to consider before buying a house that is part of a homeowners association:

1. Ask about services and amenities. You can better assess if monthly HOA fees are worthwhile if you know what they cover. Some people have no desire to hire or deal with a lawn or landscaping service, for example, and often the HOA fee covers this service for much less than you’d pay without an HOA.
2. Calculate your monthly dues. Know that the monthly HOA fee does not build equity in your property and should be considered part of your monthly housing budget that includes mortgage payment, insurance and property taxes.
3. Find out who runs the HOA and investigate members’ experiences. The board and members of your HOA are really financial partners in likely your most significant investment. You should know who they are what their goals are for the association. Take time to meet with a board member, attend a board meeting and also talk with your potential neighbors.
4. Request information about the HOA’s financial status. HOA communities have a legal obligation to retain records pertaining to community business. That includes things like governing documents, assets and liabilities, maintenance records, insurance records, architectural plans and annual budgets.
5. Use this information to decide if the HOA is worth it. Once you’ve determined that the HOA is financially healthy, well-managed and generally held in good favor by the residents, you must determine that the additional obligation the monthly fee adds to your housing budget is realistic.

Homeowners Association FAQs

Can you refuse to join a homeowners association?

Most HOAs are considered mandatory, which means that by buying a property within it you are legally obligated to join the association and abide by its rules and regulations as defined by its CC&R. If you refuse to abide by the HOA’s rules, you can face fines or legal actions as defined by the CC&R. Some communities have a voluntary HOA that you can choose to join or not. Changing the rules within an HOA is usually best attempted by persuading other members to do so – a legal challenge is typically more difficult and can be expensive.

How much power do HOAs really have?

An HOA’s power and reach is significant. When you buy a house governed by an HOA, you sign a contract binding you to its rules. If you are found to be in noncompliance with any of the HOA’s rules, you can be fined. If the fine is unpaid, the HOA can apply the amount to your property tax bill. Nonpayment of fines and fees can even result in your home being forced into foreclosure.

Do homeowners associations need insurance?

Just like individual homeowners, HOAs need insurance. HOA insurance covers community property, general liability for things like injuries, actions of directors and officers, social gathering places, such as a clubhouse or pool, a community garage and workman’s compensation for any HOA employees. HOA insurance is typically paid with normal member dues.

What if I don’t pay my HOA fees?

The penalty for not paying your monthly HOA fees will be specifically defined in the CC&R, but will generally become more severe over time. You might first lose membership privileges, such as access to a pool or gym, but further noncompliance can result in your being subject to debt collection, a lawsuit, a lien being placed on your property or even foreclosure.

Are HOA fees tax deductible?

According to the Internal Revenue Service, if the home is your primary residence, you cannot deduct homeowner association fees. However, if your property is used for rental purposes, you may be able to deduct expenses related to management and maintenance.

How many Americans live in an HOA?

The homeowners association concept in America has really taken off in the last 50 years, going from almost zero residents to tens of millions today. According to the Foundation for Community Association Research, approximately 25% – 27% of the U.S. population live in private communities governed by condominium, cooperative and housing associations.

The Bottom Line: HOAs Offer Many Perks, But They’re Not For Everyone

If you see your home as a place where you can play loud music, wrench on a car in the backyard or house some chickens, life under a homeowners association is probably not for you. But if you like living in a quiet community where your lawn is mowed for you and housing standards are maintained to keep up property value, then an HOA makes sense. Just make sure to talk to a few residents about their HOA experience first.

A great way to find a home with a thriving HOA is to get matched with an agent from Rocket Homes^SM.