Are HOA Fees Factored into Your Loan Approval?
When you’re in the process of purchasing a home, there are numerous financial considerations to take into account. One crucial element that often catches buyers off guard is Homeowners Association (HOA) fees.
These fees can have a significant impact on your monthly housing expenses, but are they factored into your loan approval? In this article, we’ll explore what HOA fees are, how they can affect your loan approval, and what you should know before making a decision to buy a property that has an HOA fee.
Understanding HOA Fees
Before delving into the impact of HOA fees on your loan approval, let’s first understand what HOA fees are and what they typically cover.
What Are HOA Fees?
HOA fees are recurring payments that homeowners make to a homeowners association. These associations are typically responsible for maintaining and managing common areas and amenities within a housing community. Common areas may include landscaping, amenities, roads, and even security services. HOA fees are the means by which these expenses are covered.
What Do HOA Fees Cover?
The specific services and amenities covered by HOA fees can vary widely depending on the community. Some common expenses covered by HOA fees include:
- Maintenance: This includes landscaping and repairs to common areas.
- Amenities: Maintenance and upkeep of community amenities like pools, tennis courts, fitness centers, and clubhouses.
- Insurance: Insurance for common areas and shared structures.
- Utilities: In some cases, HOA fees cover utilities such as water, sewer, and trash removal for common areas.
- Reserve Fund: Part of the fees is typically allocated to a reserve fund for future repairs and capital improvements.
- Management Fees: A property management company usually oversees managing the community.
Impact of HOA Fees on Loan Approval
Now that we have a clear understanding of what HOA fees are, let’s discuss how they can impact your loan approval.
Your ability to afford a mortgage is closely tied to the total monthly housing costs, which include HOA fees. Lenders typically want to see that you can comfortably afford your mortgage payments along with associated expenses like property taxes, homeowner’s insurance, and HOA fees. If these costs push your housing expenses beyond a manageable threshold, it may affect your loan approval or limit the amount you can borrow.
In order to determine affordability a critical factor lenders consider is your debt-to-income ratio (DTI). DTI is the percentage of your monthly gross income that goes toward paying debts. This includes your proposed mortgage payment, property taxes, homeowner’s insurance, and other recurring debts like credit card payments, car loans, and student loans.
When you apply for a mortgage, lenders calculate your DTI to determine your ability to manage your monthly housing expenses along with other debts. HOA fees are included in this calculation as part of your housing expenses. If the addition of HOA fees significantly increases your DTI, it could impact your loan approval.
Factoring HOA Fees into Your Home Search
When considering the purchase of a home with an HOA fee, it’s essential to undertake specific steps during your home search. Taking a proactive approach to understanding HOA fees and their potential implications on your loan approval and overall financial situation will set you up for a successful home search.
1. Research HOA Fees Thoroughly
Before making an offer on a property, research the HOA fees associated with it. Understand what these fees cover and how they compare to similar properties in the area. Be sure to factor in potential increases in HOA fees over time.
2. Calculate Your DTI with HOA Fees
Work with your lender to calculate your debt-to-income ratio with HOA fees factored in. This will give you a clearer picture of how these fees impact your ability to qualify for a mortgage. If your pre-approval is for $600,000, but it doesn’t include HOA fees once they are factored in that $600,000 pre-approval can easily be reduced down to $560,000.
3. Budget Wisely
Create a detailed budget that accounts for all housing-related expenses, including HOA fees. Ensure that your budget allows for comfortable management of these costs, even in the event of fee increases.
4. Consider Resale Value
Think about the long-term implications of high HOA fees on the resale value of the property. While lower fees may be attractive now, they could affect your ability to sell the property at a desirable price in the future.
Final Thoughts
When buying a home knowing whether or not HOA fees are factored into your loan pre-approval is imperative. As a Realtor, it’s one of the first conversations I have with prospective buyers; Are they open to purchasing a home that has an HOA fee and if so will it impact their loan approval? While many homebuyers don’t think twice about paying an additional $200 a month for an HOA fee, especially when that fee includes cable, lawn care, and amenities, it could be a deal-breaker if they’re obtaining financing even if they can afford the payment.
Years ago I worked with a couple who were approved for $300,000. Since their favorite community had a $300 monthly HOA fee I reached out to their lender to see if HOA fees were factored into their loan approval, which they were not. After including the $300 monthly HOA fee it reduced their pre-approval down to $240,000, and homes didn’t exist at that price point in their desired community. I know they were disappointed but this is exactly why I ask countless questions prior to looking at homes for sale.
So if you’re obtaining a mortgage when buying a home it’s imperative to make sure HOA fees are factored into your pre-approval. These fees can impact your debt-to-income ratio and your eligibility to obtain a loan. By thoroughly researching and understanding the HOA fees associated with a property upfront, you can make informed decisions and not fall in love with a property you cannot buy.
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Are you looking to buy a new home and need to obtain a mortgage, if so are HOA fees factored into your loan approval? #realestate #homebuyingAbout the Author
Top Wellington Realtor, Michelle Gibson, wrote: “Are HOA Fees Factored into Your Loan Approval? ”
Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell, or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.
Areas of service include Wellington, Lake Worth, Royal Palm Beach, Boynton Beach, West Palm Beach, Loxahatchee, Greenacres, and more.
Are HOA Fees Factored into Your Loan Approval?
Michelle Gibson of the Hansen Real Estate Group Inc is a full-time REALTOR who has been specializing in Wellington Florida real estate since 2001. This veteran of the real estate industry has expertise in technology, marketing, and social media.