Learning How to Calculate Mortgages In a Homeowners Association

Your Mortgage and the HOA: A Sometimes Saga 

Understanding Mortgages in an HOA

You’re ready to buy a new home, and you’ve landed on one in the best neighborhoods managed by a friendly board of HOA members. Once you start digging into the purchasing process of your new house, however, you will soon discover that your HOA can heavily affect your ability to qualify and close on your mortgage in a number of ways. There are lots of details surrounding mortgages in an HOA, many of which must be sorted through with a fine-tooth comb in order to make sure you’ve done all the work and can move into your house legally and without any issue!  

A mortgage, as most of us know, is typically paid out over the course of 15 to 30 years, but if you’re a part of a homeowners association then you need to be considering the required fees for your HOA before deciding on a monthly payment. Our aim in this article is to break down the relationship between an HOA and your mortgage payment. Your fees to the HOA are non-negotiable and will become a significant part of your mortgage bottom line.

Understanding the Relationship

In a typical home purchase, the buyer will get a loan from a lender (usually a bank or other loan company), and pay the down payment for the home. This down payment is the upfront amount needed to pay off the mortgage over the length of the loan and includes a payment on the principle of the loan as well as interest. When you’re locked into an HOA, however, the amount will shift depending upon your HOA monthly dues as well as the strength of the HOA’s financial situation.

When you’re seeking a loan for a new home within an HOA, both you and the HOA must meet the lender’s financial guidelines before proceeding. In some cases, your HOA’s financials will be as involved in your home buying process as you are. In addition to looking over your financial history, many lenders will require the HOA to fill out a questionnaire regarding their financial standings. As a potential buyer, we also recommend you do your due diligence with the HOA by securing their account statements and attending an HOA meeting during the escrow period.

Lenders can be picky when choosing whether or not to loan you the money for a down payment on your new home depending upon the health of the HOA you’ll be living in. You should expect a lender to study the ratio of buyers to renters in a building, conditions of the properties in the subdivisions, or if you’re living in a condo, the vacancy rate in the building. That if you are disqualified from your first attempt at a loan due to your HOA’s standing, you don’t need to panic. Oftentimes lenders have different criteria for what’s approved and what’s not. Try a different lender the second time around and if you’re denied financing once again, be prepared to continue with your house hunt.

HOA Fees and Your Mortgage Payment

One point we can’t hit home hard enough is that your HOA fees can affect your interest rate. HOA boards have the ability to take action against homeowners who fail to pay their monthly HOA fees. If you have a friendlier board on deck, they might just issue a warning, while others will choose to place a lien on your home, and ultimately can put your house into foreclosure if you don’t pay up! All of these actions vary depending upon your state’s laws, but missing payments to your HOA can be devastating.

Finally, it’s key to get to know your HOA’s fee increases both historically and for the future. Securing your HOA’s budget and financial statements will help you determine whether you will be able to keep up with payments over time. It’s crucial that you speak with a member of the board to find how often the fees increase and how much they are raised per year. Be sure to ask for a printed history of the HOA’s dues over the last decade and get a copy of the reserve fund. These fees and changes can certainly impact your financing, so planning as much as possible will help to avoid issues in the future.

Avoiding Issues

As you can see, dealing with an HOA while already trying to juggle the countless responsibilities that go along with buying a new home is no walk in the park. Lots of homeowners want to live in a homeowners association because it eases many of the stresses of maintaining a home. But because you’ve agreed to live in one and therefore have handed over a certain level of power, HOA’s can also cause headaches if the rules aren’t followed.

Your mortgage in an HOA doesn’t have to feel like a difficult journey if you plan ahead and you know what you’re getting into. Understand and get to know the members of your board because having a contact there to help you with questions and concerns in your home buying process can ease issues that may occur down the line. Talk to your neighbors, your broker, and study the guidelines before making that fateful appointment with your lender. Get clear on your own financial history and do your best to make smart forecasts on your future financial standing before you commit to living in an HOA.