Can An HOA Kill Your Home Purchase?

Did you know there are more than 350,000 homeowner associations or HOAs in the United States? About 50% of the owner-occupied homes in the country are a part of an HOA, according to a report from HOA-USA.

It’s certainly not uncommon to find a home within an HOA, even in New Orleans. While these associations may not be as bad as the media makes them to be, they do add something to think about when buying a home.

While you know you have to go through the scrutiny of a lender, an HOA is another entity to deal with. When considering a home purchase in a neighborhood with an HOA, you have to understand the possibilities. The HOA could kill your entire deal, but you can be prepared.

Defining an HOA

HOA stands for homeowner association and it’s typically the governing body for the neighborhood you live within. If you choose a home in a community with an HOA, you will have to abide by their rules and regulations. They have the ability to enforce contracts made with homeowner, as well.

You don’t get a choice with a community run by an HOA. If you buy a home in one of these communities, you’re a member, whether you like it or not. The board of the HOA will decide how the rules are enforced and will assess any penalties if you break the rules.

How an HOA Could Kill Your Home Purchase

While most deals in HOA communities will go through without issue, some will run into problems. Here are a few ways an HOA could hurt your home purchase.

The HOA Finances

Your lender will look into your financial situation, but they will also look into how the HOA for the neighborhood handles money. If you’re getting a conventional loan, you may have to deal with specific guidelines for HOA financial health, such as:

•          A specific reserves fund must be set up
•          Property insurance will need to meet specific guidelines
•          Too many homeowners behind on dues and fees could be a huge issue

Be prepared if the HOA has a poor financial reputation. If they don’t meet the lender’s guidelines, it could derail your entire home purchase.

HOA Lien

If a homeowner gets behind on their HOA dues, a lien could be put on the property. This means, if you try to buy the home, you may have to take care of this client before you can do so or before your lender will approve you.

If you don’t get title insurance, you’re loan will be denied in this situation. If the lien isn’t paid, the HOA could foreclose on the property and seize it. Make sure the seller is prepared to pay the amount they owe or you could be in trouble when buying a home with an HOA lien on it.

Pending Lawsuit

Some homes within HOA communities could have a pending lawsuit, as well. This could be due to issues with keeping up the property, rule violations, building defects or another reason. You want to be aware of any litigation against the home as it could cause your lender to turn down your application.

How to Deal with HOA Homes in New Orleans

The first step, if you plan to purchase a home in a community with an HOA, is to find a good real estate agent. Your agent will be aware of the potential issues, as they have probably seen them before. You can also use the online FHA database if you’re purchasing a condo in New Orleans. This will help to ensure you know what you’re getting into before you fall in love with the property.

Once an HOA document package has been given to you, it’s not a bad idea to have an attorney look over it. These documents can be hard to understand and an attorney can break it down for you. They can also spot any red flags you should be aware of before you move forward with the deal.

You don’t want to limit yourself to just communities without HOAs as they provide plenty of excellent benefits. However, you need to be aware of the possibilities and how to protect yourself from any liens, lawsuits or other issues with the HOA for the community you’re considering.

Make sure you hire a good real estate agent when shopping for a new home in New Orleans. Their experience will pay off in the long run as you deal with potentially buying a home in a community with an HOA.