Tuesday, September 11, 2012

Condos and Home Owner Associations Dues



Recently I have been working with a number of first time buyers.  Like a lot of first time buyers, they are looking at getting a condo as a way to begin the home ownership process and a good way to start building equity to help with getting that family or dream home down the road.  With rent rates on the increase, why not purchase a condo instead of renting?  It's going to cost the same, right?  Not necessarily.

Most people are aware that they need to secure financing to purchase a condo and have monthly mortgage payments; however, a lot of first time buyers are not aware that in addition to their monthly mortgage payments, there is monthly home owner association (HOA) dues.  These monthly HOA dues can reach as high as $400 or more each month, with most condominium complexes in the area ranging from $250-$350 per month.  This can really put a damper on how much you can afford for a condo.

Lets say someone was looking at their finances and decide they can afford $1,000 a month in monthly housing payments.  They fill out the mortgage calculator on their favorite real estate website and it shows they can purchase a $200,000 condo, with monthly payments of $976, after a 20% down payment.  Awesome!  That's cheaper then most apartments for rent!  So they start doing web searches and find that perfect condo.  They call up their favorite real estate agent to set up a showing of the unit.  During the showing the agent states there is a $325 monthly HOA due for this unit.  A $325 whata?  I can't afford that.  Now they have to start their search over again, except looking at $150,000 condos, which in most cases would be smaller or not as nice units.

So why do I need to pay these fee's and what are they for?

The monthly HOA dues help pay for the maintenance of the complex and to maintain the common areas on the grounds.  This helps ensure the up keep of the condos and keeps the condo complex looking nice, which in return, helps keep the property values form going down.   Part of the monthly dues may go into a fund to help pay for major projects, like replacing the roof or major pluming fixes, which individual owners don't repair themselves.  A well-managed HOA can help reduce these major repairs and possible reduce the chances of a major assessment down the road.  Also, most HOA dues include garbage and water payments, as well. 

So if you are in the market to purchase a condo, whether to live in or as an investment, be sure to review potential condo units for their HOA dues and potential other charges, like assessments, in additional to your monthly mortgage payments.

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