By Kimberly Dawn Neumann

Sep 28, 2023

(Getty Images)

When purchasing a new-construction home, most buyers prepare for the down payment, closing costs, and subsequent monthly mortgage payments. But one additional expense that sometimes gets forgotten in initial calculations is homeowners association (HOA) fees.

These “neighborhood dues” are generally paid monthly, quarterly, or annually and go toward the upkeep and preservation of the community where a home is built.

The money might go toward ongoing expenses like landscaping and pool cleaning, but it could also be used for bigger ticket items like the maintenance and staffing of a community pickleball court. Basically, it’s everyone chipping in to make sure any common-area expenses are covered.

Here’s more of what homebuyers, homeowners, and home sellers need to know about HOAs in a new-construction community.

The benefits of an HOA

The overwhelming majority of people who live in a community with an HOA (89%) rate their overall experience as positive, according to the 2022 Homeowner Satisfaction Surveyconducted by the Foundation for Community Association Research.

Beyond extra amenities, it’s important to remember that HOAs also ensure the aesthetics and safety of the community.

“Homes [in HOA neighborhoods] are going to be uniform, landscaping will be kept up, there are security gates or fencing, and you’re not going to have a neighbor who paints their home a bright neon orange with dead plants and grass and hundreds of lawn sculptures,” says Doug Jacobs, builder partner manager at Opendoor.

“An HOA enables you to maintain the value and continuity of the neighborhood while also protecting your investment in your home,” adds Jacobs.

HOAs also alleviate for homeowners the hard work of keeping their community looking and functioning at its best. Not only is that great for the time you’re living there, but it also helps protect the resale value should you decide to move.

How are HOAs in new-construction communities created?

New-construction HOAs are usually determined by the builder and an HOA management company during the development phase of the community, prior to selling lots.

“The management company will work with an attorney on drafting the bylaws (how the board of directors will govern) as well as the covenants, conditions, and restrictions (CC&Rs), which are essentially the rules and regulations for the homeowners,” says Tiffany Sears, a broker and agent of The Sears Group in Charlotte, NC.

At this developmental point in the new-construction process, any HOA fees for homebuyers are calculated based on operating costs and expenses for the community, taking into consideration planned amenities (like swimming pools and gyms) and expected maintenance of the common community areas (such as parking lots and security gates).

Since HOA dues will add to overall monthly expenses, buyers will need to know what those fees are at the time of signing the contract on a new-construction home.

“Most builders will provide the bylaws and CC&Rs so the buyer can review the rules and regulations to make sure they aren’t buying something that has conditions that they can’t or don’t want to adhere to,” says Sears.

How much are HOA fees?

Fees vary widely depending on where the community is and the scope of the amenities offered.

“Nationwide, the average monthly HOA fee is between $200 and $400, but they can also run into the thousands of dollars if you’re in a luxury gated community that’s in a sought-after location,” says Jacobs. “The more ‘amenitized’ the community is, the higher the HOA fees are going to be.”

The HOA management company is also paid for by the HOA fees, and most communities also charge a “capital contribution.” This fee is assessed at closing and is a part of the closing costs the buyer pays.

“I like to call it a ‘welcome to the neighborhood gift,’ essentially building the HOA’s savings account,” says Sears. “It is designed to be a fee to help build the operating fund for the HOA for any large projects that might need to be covered over the years.”

Are HOA fees ever negotiable?

Since HOA dues are calculated and paid differently (with billing usually coming directly from the HOA management company), this fee is typically not up for haggling.

“The real estate industry likes to say that everything is negotiable, but when it comes to HOA fees, it’s very unlikely that they can be negotiated down,” says Jacobs.

However, there is a possibility that HOA fees can be negotiated with a new-construction builder to have them be offset as an incentive.

“I have seen builders include the first year of dues as an incentive to purchase,” says Sears. It never hurts to ask.

Can I opt out of an HOA?

HOA and their fees are not “participation optional.” If you buy into a neighborhood that has one, you are required to pay your part.

“You typically cannot choose to pay for only some of the amenities, as your portion of the budget for HOA fees covers all of the amenities,” says Jacobs.

The one caveat here is that sometimes, there will be “levels” of participation.

“Many new-construction communities offer a variety of amenities, but not all of them may be included within the HOA fees. There may be some amenities that can be chosen for an added cost beyond the base HOA fee,” says Chris LaMont, an American Standard Homeowning 01 featured instructor and star of the HGTV show “Buy It or Build It.”

For example, with communities that have amenities like boat dock access, a country club, or a golf course, the HOA might be for only the public areas and buyers would have to elect to join those additional amenities.

“I have seen communities that have two different HOA dues where one is for the upkeep of the community and the second one is for access to the pool, playground, or clubhouse amenities,” says Sears.

How do HOA fees factor into financing a mortgage for a new-construction home?

Mortgage lending guidelines evaluate HOA fees when determining how much to lend to a borrower.

“HOA dues are considered a recurring debt and are calculated as a part of your debt-to-income ratio by mortgage lenders, and this may affect a prospective buyer’s loan approval amount,” says Sears.

If a potential homebuyer is at the top of their DTI ratio, high HOA fees could actually make a property financially unavailable.

During the loan approval process, a buyer should ask the lender if there are any concerns related to an HOA amount to be aware of.

“As a real estate agent, this is one question I always ask because we want to avoid any issues where a buyer falls in love with a home, but the HOA makes it out of reach for them,” says Sears.

Do HOA amounts ever go up?

HOA fees can change on an annual basis. For example, maintenance contracts for the common areas and insurance costs to protect the property are often renegotiated yearly. Also, there might be a shortfall in funds for a higher-than-expected maintenance item that could require an increase, such as stormwater pond maintenance or tree removals.

All HOA rules and guidelines are in the CC&Rs (financial and otherwise), and people looking to buy in should review them fully.

“CC&Rs are publicly recorded and are not separable from the deed, so they’re publicly available at every local government municipality,” says Jacobs.

What happens if I can’t pay my HOA dues?

Unpaid mandatory HOA dues can lead to a lien being placed on the home and eventual foreclosure, so you must make sure you are able to pay your dues before putting down a deposit in a new-construction community.

“Make sure you set an annual budget outside of your mortgage payments to cover HOA fees and know that these costs are subject to change year over year,” says LaMont. “These fees shouldn’t be taken lightly, as there can be harsh repercussions for unpaid dues, fines, and any accumulated interest.”