One of the least favorite items for many owners living in common interest condominium developments is the monthly paying of their HOA dues. In this article, we aim to explain how these dues actually increase your bottom-line, and how they are important to increasing your property value.
Reason #1: Delinquent Owners Cause Problems for Lenders. Did you know that many lenders, including Fannie Mae, will not guarantee loans in condominiums where more than 15% of the homeowners are 30 days or more delinquent on their HOA fees? This can significantly hurt property values because it diminishes the potential buyer pool for your HOA!
Reason #2: Insufficient Reserves Cause Problems for Lenders. Did you know that in order to loan on a condominium, mortgage lenders have requirements on the amount of reserves an HOA must have in order for them to guarantee a loan? They do. Mortgage lenders require that your HOA has a reserve equal to at least 10% of the total annual dues for your association. If your association has $100,000 in annual dues, then you must have at least $10,000 in your reserve account. As an additional rule: You must have the reserve funds in an account that is separate from your standard operating account.
Reason #3: An Underfunded HOA Reserve is a Red Flag to Perspective Buyers. When shopping around for a condominium, prospective buyers are weary of reserve accounts with low balances. This is especially true if the property is going to need some upgrades in the near future. Prospective buyers know that if there is a low reserve, a special assessment may be required soon after they buy. The possibility that there could be a large expense soon after buying will reduce the price that prospective buyers are willing to pay for your unit!
Reason #4: Underfunded HOAs are Chronically Under Maintained: When an HOA is strapped for cash, the first thing to go are the small day-to-day maintenance items that can be ‘pushed back.’ Unfortunately, over time, these pushed back maintenance items add-up and they become more and more noticeable. As these items pile up, the property is continually in a worsening state of repair and the amount of money required to fix everything continues to grow. When an HOA is underfunded (for example due to owners being delinquent on their dues), the property deteriorates at a rapid pace, resulting in significantly reduced home values.
The above lists four of the biggest reasons to pay your HOA dues and to pay them on-time. Paying your dues on-time is really an investment in your future, and putting money back into your pocket over the long-term.