El Dorado Hills - Homes & News - DeeDee Riley Realtor: Before Buying Think Twice About Those HOA Dues!

Before Buying Think Twice About Those HOA Dues!

If you are considering buying a house with HOA dues, you need to consider what those HOA dues really mean for you. There are three key points I like to address with my buyers- loan qualification, tax deductions, and home purchasing power.

 

  • Loan qualification – when a lender is approving you for a loan – the amount of HOA dues are calculated along with the monthly payment for the housing ratio which should be around 35% of your total income. (This percentage varies depending on a number of factors but it averages around 35 %.)  Your lender can tell you more about this.
  • Tax deductions – HOA dues are not tax deductible like mortgage interest is so there is no benefit to you in that respect.
  • Home purchasing power – (as I like to call it) Here I am referring to the extra dollar amount you can put towards the purchase of a home for the money you are spending on monthly HOA dues. This figure varies slightly depending on the interest rate you are paying.  At a 5% interest rate loan, it calculates that for every $54 you spend in HOA dues is $10,000 more you can spend on the purchase price of a house.  At a 5.5% interest rate loan, that number changes to every $57 you spend in HOA dues equaling $10,000 more house you can buy.   

 

Here is an example of how that works at an interest rate of 5.5%:

Home A – $250,000 Purchase Price with 20% down = $200,000 loan, Monthly payment of PITI (principal, interest, taxes, and insurance) of $1495.99 + 200.00 HOA dues = $1695.99 Total Housing Payment per month               

Home B – $285,000 Purchase Price with 20% down = $228,000 loan, Monthly payment of PITI (and no HOA dues) = $1,691.43 Total Housing Payment per month.

 * Also remember the tax deduction factor you are losing each month on the $200 HOA dues verses $200 paid in interest instead.

 

If the HOA dues cover things such as water, garbage, cable, fitness center, pool, etc., there are at least some recoverable benefits to consider. The bottom line:  Before you jump into that purchase that includes HOA dues think about what you are getting and what you are giving up.

 

 

DeeDee

 

DeeDee Riley - El Dorado Hills Realtor - Lyon Real Estate - CABRE#01499004

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Comment balloon 15 commentsDeeDee Riley • February 20 2010 03:43AM

Comments

In Vegas you just can't avoid a home built after 1997 that doesn't have HOAs.  You may be able to afford a higher priced home but you are also buying a more dated home.  That is a tradeoff you must also consider.

Posted by Kevin Dunlap (Trident Investments Group) over 8 years ago

It seems that HOA dues are getting higher and higher every year.  Many HOA's are having to increase premiums to subsidize all of the non paying homeowners.  It's a tough time right now!

Posted by Home Design, Home Design and Real Estate over 8 years ago

Great points DeeDee. Getting into a house a being able to stay there are two different things.

Posted by William True, Sarasota Real Estate (True Sarasota Real Estate) over 8 years ago

Jennifer is correct and agents should caution buyers of the potetial for this and suggest that HOAs that are professionally managed are more likely to have the proper reserves AND knowledge as to the steps to collect deliquent dues and keep costs down

Posted by Wallace S. Gibson, CPM, LandlordWhisperer (Gibson Management Group, Ltd.) over 8 years ago

This is a really great post for clients...  Many do not realize what they are getting into with HOA dues and don't read the small writing regarding the potential assessments in the future...

Posted by Barbara Kornegay, Wilmington NC Real Estate, Homes (REMAX Essential) over 8 years ago

Hi DeeDee,

These are valid points and I think are especially true of condo's, townhomes and gardenhomes. However in our area with so many master planned communities built after 1997 in order to enjoy community pools, tennis courts, hike & bike trails and parks there will be a HOA fee! These should run around $400/year which is very reasonable for a family. These ammentities appear to be what buyers are looking for in the community they choose.

Posted by Dorie Dillard CRS GRI ABR, Serving Buyers & Sellers in NW Austin Real Estate (Coldwell Banker United Realtors® ~ 512.346.1799) over 8 years ago

Great tips for home buyers. I always take the costs of HOA dues  in to consideration when I show them homes.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) over 8 years ago

Thank you all for your comments - I intend to add my blog to buyer information on my web site and will definitely revise with some of your valid points.


Kevin - We are seeing most newer neighborhoods having HOA's too but some much higher than others and I mostly wanted people to be able to have an easy way to calculate what it means


Jennifer - Very true. And I have found the older condo complexes with extremely high dues. At that point they hopefully have great amenities and location!


William - Thank you.


Wallace - Great point.


Barbara - I think most know that they have them but like you say don't know the details.  Assessments and future increases are a great point I'll be adding.


Dorie - We have many of those communities here in the Sacramento Valley too, but not for $400 per year.  That is very reasonable.  And at least families are getting something for that. We have a master planned community here in El Dorado Hills called Serrano.  HOA fees there run between $175 and $275 per month. They do include front yard maintenance so if getting a gardener is something you do anyway, it offsets the dues. There are individual parks in each of the villages (as they call them) and hiking trails throughout but homeowners have to put in their own pool.


Gita - Thank you!

Posted by DeeDee Riley, Realtor - El Dorado Hills & the Surrounding Areas (Lyon Real Estate - El Dorado Hills CA) over 8 years ago

Thank you for the comparison. It makes sense to try your best and get something for something(your money).

Posted by Robert L. Brown, Grand Rapids Real Estate Bellabay Realty, West Mic (www.mrbrownsellsgr.com) over 8 years ago

Deedee,

First time buyers often think buying a condo is a better deal as the prices are lower...however when you factor in the condo fees, they are paying far more and getting poorer investment value.

The way you have explained it is very clear and should help many buyers...

Jo

Posted by Jo-Anne Smith over 8 years ago

Something to consider with condos also. We have many here that have really low prices but their HOA dues are 2 to 3 times higher than anyone elses because of all the disrepair that has been forgotten over the years that they had to raise them to pay for all the repairs.

Posted by Respect Realty LLC, Brokers - Oregon / SW Washington Real Estate (Respect Realty LLC) over 8 years ago

Thank you Robert for your comment. Buyer's just need to be aware.

Jo-Ann and Todd - my point exactly.  Thank you both for your comments.

Posted by DeeDee Riley, Realtor - El Dorado Hills & the Surrounding Areas (Lyon Real Estate - El Dorado Hills CA) over 8 years ago

Hello
(Lisadokie@yahoo.com)My name is Lisa Dokie, i saw your profile today and became interested in you,i will also like to know you more,and if you can send an email to my email address,i will give you my pictures here is my email address(Lisadokie@yahoo.com) I believe we can move from here! Awaiting for your mail to my email address above , Remember the distance or age or color does not matter but love matters a lot in life, i will be waiting to hear from you soon.
Yours
Lisa

Posted by Golden Sunshine (Rock Of Ages) about 7 years ago

I left a surprise for you in my blog this morning. Let me know when you find it. What? You thought I was going to tell you what it is. Ha! Although this comment is a clue.

Happy Saturday!

Posted by Not a real person about 7 years ago

Great way to show it in black and white!  35k extra in a home can open up a whole new list of beauties to consider.

Posted by Laura Sargent (Carolina One Real Estate) about 7 years ago

Participate