Evaluating HOA Financials: A Guide to Buying a Home in a Community Association

The journey to finding the perfect home is filled with excitement, but joining a homeowners association (HOA) can introduce a range of questions. While HOAs might initially seem like a limitation, they offer various advantages. Before committing to any association, it's crucial to verify that the HOA’s finances are in order and that membership fees are reasonable.

Being part of an HOA doesn’t have to deter you from finding your dream home. Through proper research, you can determine if joining is the right decision. Some signs of a well-managed association are evident, but others might not be as obvious. One should be aware that newcomers might not know what to look for or which questions to ask.

Fear not! Here is a comprehensive list of the six most critical steps for assessing a community association.

1. Review HOA Financials

The amount paid in assessment fees is closely linked to the HOA’s financial health, making it essential to know if funds are wisely managed. It's vital to understand the HOA's financial status, particularly the reserve funds, to ensure it can cover capital improvements. These improvements might include replacing major elements like HVAC systems or repairing sidewalks.

If reserve funds are low, be prepared for the possibility of increased fees or special assessments in the future. Examining the reserve study provides insights into whether enough funds are allocated for major expenditures. This study outlines the expected lifespan of community components and the necessary annual reserve contributions. Ensure the study is updated within the last three to five years and compare it to the actual reserve fund. A reserve funded below 30 percent indicates a high risk of extra fees, while more than 71 percent signifies low risk.

Keep in mind that reserve study requirements vary by location. Some areas might not mandate a study for smaller communities, while others require frequent updates and inspections. Understanding your local requirements is crucial.

2. Review the Association’s Governing Documents

Thoroughly examining the HOA's documents is essential. Request the articles of incorporation, bylaws, covenants, conditions, restrictions (CC&R), and financial records. These documents provide a clearer picture of the association's viability and help you decide if it aligns with your lifestyle. It’s better to uncover any uncomfortable community guidelines before moving in.

3. Examine the Landscaping and Outdoor Maintenance

While the condition of your prospective home is important, the state of common areas also warrants attention. The maintenance of outdoor spaces reveals much about a community. A well-managed association will have a clear schedule for landscaping and maintenance, reflected in the community’s appearance.

Check if the grounds are tidy, walls and fences are intact, and roofs on communal buildings are well-maintained. It’s also wise to assess areas beyond just the main entrance to judge preventative maintenance. Walking rather than driving allows for a more comprehensive evaluation.

4. Check Out the Condition of Amenities and Common Indoor Spaces

Assessing the community’s amenities, like the swimming pool and fitness center, is crucial. Testing gym equipment, even if you don't intend to use it, can indicate the community’s maintenance efforts and potentially influence property values.

Inspect other common areas, such as the lobby and hallways. Their condition can reflect the community’s attention to cleanliness and modernization efforts. Maintained spaces suggest an organization that funds regular updates and repairs.

5. Contact the Community’s Property Management Company

If a professional management company oversees the community, inquire about special assessments and their frequency, insurance claims, and any lawsuit involvement. Court records can provide further insights.

Additionally, check on homeowner delinquencies since lenders evaluate the HOA’s financial stability as part of the mortgage approval process. High delinquency rates might impact loan guarantees from entities like Fannie Mae or Freddie Mac.

6. Speak to Current Homeowners

Engage with current residents during your visit. Their satisfaction with the community and HOA management is invaluable. Consistent complaints across several residents can highlight potential deal breakers.

Ultimately, buying a home in a managed community means committing to the association. Although purchasing a home is significant, thorough research can minimize unforeseen issues.