Are HOA Fees Really That Expensive? What They Cover and How They Affect Your Buying Power

"Damn, that's expensive!"

We hear it all the time when buyers see the HOA dues on a San Diego condo or townhome. Sometimes they're right. But the monthly number alone doesn't tell you whether a home is a good deal.

There are two questions to ask: What am I getting for that money? And what does it do to my buying power?

HOA dues vs. owning a detached home

When you own a detached home, repairs and maintenance don't show up as one neat monthly line item. They arrive as a new roof, a failed water heater, a repainting job or a landscaping bill.

With a condo or townhome, some of those costs are built into your HOA dues. Depending on the community, dues may help pay for:

• Exterior maintenance and shared roofs
• Master insurance for common areas and structures
• Landscaping and common-area upkeep
• Pools, gyms and other amenities
• Some utilities, such as water or trash
• Reserves for big future projects

Every HOA is different, so read what yours covers. Then compare it with what you'd realistically set aside to maintain a similar detached home.

How HOA dues affect what you can borrow

Lenders factor HOA dues into your monthly obligations. That raises your debt-to-income ratio, which can reduce how much you qualify to borrow.

Here's a simple illustration. At an example rate of 7% on a 30-year loan, every $500 per month is about what it takes to pay principal and interest on a $75,000 loan. So a $500 HOA can take a similar bite out of your borrowing room.

This is an example only. Your rate, loan program and finances will change the math.

What to check before you buy

Don't stop at the current monthly dues. Ask for the HOA documents and look at:

• The budget and reserves. Is the association saving enough for big projects?
• Recent and planned dues increases. What has changed in the last few years?
• Special assessments. Are any planned or being discussed?
• Balcony and deck repairs. California's SB 326 requires many condo associations to inspect certain exterior elevated elements, and repair costs can affect owners.
• What insurance covers. Find out what the master policy includes and what you'd need to insure yourself.

The bottom line

An HOA fee can be expensive, or it can be a fair price for costs you'd pay anyway. Either way, it belongs in your budget from the start. Don't just look at the purchase price. Look at the full monthly cost of ownership.

Comparing a condo with a detached home? Talk to our team and we'll run the full monthly numbers on both.

Disclaimer: Educational purposes only. The GreenHouse Group Inc. (CA DRE #01859042 | NMLS #366847). We are real estate and mortgage professionals, not CPAs, tax advisors or attorneys. This content is not individualized real estate, financial, tax, legal or lending advice. Examples are illustrations, not quotes or guarantees. Loan approval, rates and terms depend on eligibility and may change. HOA rules, dues and legal requirements vary, so review the governing documents and consult qualified professionals about your situation.