You just received your pre-approval letter from your lender and you’re ready to hit open houses and schedule appointments to walk through your next potential home. You find your dream home or condominium, you contact your lender and ask for estimated payments. The lender asks you a very important question that didn’t even cross your mind...“What are the Homeowners Association fees (HOA)?”
If you’re purchasing for the first time you may not have heard of this, know what this means or what it entails. Homeowners Association fees are typically tied with high-end communities and condominiums to cover the costs of the amenities provided. The amenities included are typically pools, clubhouses, fitness centers, lawn/snow maintenance, pest control, and city services such as trash removal. These fees range in price but they can be as low as $100 to a couple of thousand dollars, and primarily depend on the size of the property, location, age of the building, and the amenities offered. So depending on what the fees are associated with the property, it can jeopardize your approval or put you in a situation of having a property that may be over-budget for you.
Also, remember that these fees can be increased by the HOA’s Board of Directors who must plan for the future and to do what they need to in order to build a reserve fund to cover large-scale projects or emergencies. It is imperative you do your homework and know what your HOA fees cover and what the costs are, as these will differ significantly between properties. Weighing the value of the amenities against what you’re willing to pay each month, or per year should also be in your thought process. Here is a list of questions that you should be asking to help decide between properties to know exactly what your HOA covers, and how likely they are to rise in the future:
- How often do increases occur, and by what percentage?
- How are fee increases implemented, at regular intervals or as-needed?
- What services are covered by your HOA fees?
- What is the current status of the HOA’s reserve fund?
- Can the HOA provide a history or rate increases for the last 10 years?
- Are any special assessments planned for the immediate future?
Or better yet, call your mortgage loan officer at Michigan First Mortgage to assist you at 877.312.9033.