When looking for eligible locations to build your beautiful custom home, you may have encountered a home owner association or two. Some people praise these organizations for the amenities they provide and for maintaining a certain standard within the communities they serve. Others share conflicting stories of HOAs overstepping boundaries. The truth is that both of these experiences are correct. How is that possible?

Like any organization, HOAs differ based on the people behind them. Because of this, when buying a lot that falls within an HOA’s limit, do your research before purchasing. The good news is that when a good association manages your neighborhood, you can count on great amenities and protection of your property value. Use these guidelines to determine if the pros are worth the cons.

1. Budget for Varying Fees

Quicken Loans estimates that the average monthly HOA fees fall between $200 and $300. However, you may find HOA fees lower than $100 or higher than $1,000. Keep in mind that the fee may also increase. Before increasing fees, HOAs may complete an assessment to determine how much more to increase it by. Others may put annual increases in place.

2. Consider Loan Eligibility

If you plan to finance your home construction with a loan, note that banks consider the HOA fee when determining the monthly mortgage payments you qualify for. For instance, if you qualify for a monthly mortgage payment of $2,000 and your HOA fees are $300 per month, you qualify only for a $1,700 monthly mortgage payment in that community.

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3. Determine What the Fees Cover

What HOA fees cover can vary. In most communities, HOA fees pay for city services and shared amenities. These may include sewer, trash, fitness centers and community pools. In some communities, the HOA may also acquire services on behalf of the community, such as lawn care or power washing.

4. Prepare for Automatic Membership

The only way to opt out of HOAs is to not purchase a lot within an HOA community. Once you buy the lot, you automatically join the association. Some HOAs may even insist that you review and agree to the regulations in place before you are allowed to purchase the property. Note that your agreement is a contractual bond.

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5. Review the HOA Documents

Before you purchase a lot, it is important to inspect a few documents regarding the HOA:

  • Articles of incorporation
  • Covenants, conditions and restrictions
  • Bylaws
  • Any additional regulations

6. Find Out How To Change the Rules

Once you sign all the documents and purchase your property, the HOA rules you agree to become legally binding. However, there are ways to change them. Attend the local meetings and ensure your voice is heard. You can also try to become elected as a board member so that you have a say in making and revising the rules.

7. Identify the Managers

Ideally, home owners living within the community manage the HOA. However, this is not always the case. Some HOAs are managed by professional property managers. Before purchasing land in a community like this, verify the reputation of the company. Asking future neighbors and doing online searches may prove helpful. Keep in mind that another company could step in to fill the position when the contract ends.

8. Maintain Peace by Following the Rules

The rules you agree to are not just on paper. The HOA does have the authority to use legal and financial means to enforce them with a number of options:

  • Warnings
  • Fines
  • Home liens for non-payment
  • Civil litigation

9. Determine the Tax Treatment

If you purchase a lot to build a custom home as your private dwelling, your HOA fees are not tax-deductible. However, if you build a home with plans to treat it as a long-term or short-term rental, you can deduct HOA fees as a business expense when filing your taxes.

10. Review Property Plans

When property developers build HOA communities, they sometimes sell each remaining empty lot with building plans. Find out if you have to use these building plans or if building a custom home is possible. You should also determine if you must work with specific contractors.

Weigh the Pros and Cons

Purchasing property that belongs to a community with an HOA has pros and cons that you should weigh carefully to determine if they are right for you. If you enjoy privacy and freedom to use your property as you see fit, an HOA property may not be right for you. However, if you like knowing your neighbors and your family will subscribe to the same rules to maintain order, aesthetics, and value, consider an HOA lot.

Have you found an HOA lot but still have questions about whether it is a good fit for your new home? We can help. Give us a call at 715-359-7272.

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