What You Should Know About HOA Fees
Carlsbad home buyers often find themselves confronted with Home Owner Association (H.O.A.) fees when looking at homes for sale. Fees can vary widely (from under $100/months to more than $400/month) and may add substantial costs to your monthly payments. Not all homes have them , but it is important as a buyer to watch for these fees, find out how much they are, and understand what you are getting for these costs since they impact your monthly budget.
HOA fees are not restricted to condominiums, although they tend to be more common because of the type of ownership. So don’t assume that a detached Carlsbad home will not have these fees; they are more common in the formal subdivisions, but there are exceptions.
Some things to know:
- HOA fees are not negotiable – you must pay what the required fee is, and typically they are paid monthly. In some cases in this market a seller may offer to pay the HOA fees for a period of time, say 6 months, as an incentive
- HOA fees, as far as I know, are not tax deductible. But I am not an accountant so check with a professional. If you are buying an investment property, however, these fees MAY be deductible as part of your operating expenses.
- HOA fees can, and likely will, change over time, based on the needs of the association and approval by its members. In addition, special assessment may be levied if the HOA’s funds are low and large expenses are going to be incurred (say, repaving the parking lot, redoing all roofs)
- HOA fees may cover a variety of services, e.g., grounds and exterior maintenance, water, sewer, care of the parking lot, electronic gate, garage, elevators, tennis, pool, master insurance, hot water (not common), and more. You should know in advance what your fees are paying for; check on this before you buy as part of your due diligence process.
- Some HOAs are self-managed (and consist of the residents) and others, usually the larger ones, have a management company to take care of billing, collecting fees, maintenance, and more. There is a cost for that too.
As part of the due diligence process once you have made an offer, you will want to check out the HOA documents (By-Laws, Rules and Regulations) as well as the budget and the HOA meeting minutes for the last year (or whatever is available). You want to make sure the association is financially stable (and not involved in a lawsuit) and has money in the budget for expenses, and that they are not planning a large assessment for which you, the new owner may need to pay (of course if you find this out and still want the property, go ahead). The ore you can learn about the association up front, the better.
When You Snooze You Lose
You may have heard the expression “when you snooze, you lose.” Sometimes waiting to make a decision, or to do something means you lose out on what you want or need.
The same is true in real estate…
even in this market of loaded inventories and sluggish sales.
Don’t make the mistake of thinking that because the market has shifted and is slower (the media tells us that all the time) that the home you find and love will sit there and wait for you to make a final decision. Even in the case of REOs, foreclosures and short sales.
Waiting to make a decision because you hope the price will change, or a better deal will come along, or for whatever reason COULD result in you losing the house you really liked. I have seen this happen repeatedly, even in this market. Buyers sometimes think that because there is so much to buy, or things are slower, that they can take their time.
Sometimes they can wait and things work out.
But sometimes, “when you snooze you lose.”
What Will YOU Trade Off When Buying Your First Home?
You, like most folks who are buying a home, likely have a wish list of some sort of all the things you want in your new home and neighborhood.
Perhaps you have even written out the list.
But if I were to ask you what are you looking for, you could probably give me a list. And even tell me which things are most important vs. those that are less critical.
Going through the process of finding the right home is a challenge, and it is not always dependent on your price range. Everyone wants certain things, no matter what the budget. Most of the time there will be some “wants” you must be willing to sacrifice:
- your budget may not permit buying in a certain location
- the home that has the room you want has no yard
- you found a property with a great view but one less bedroom.
- all the properties in your price range in the community you want are condos, not detached homes
Be prepared to give up some things to buy a home that meets most of your needs, otherwise you will probably look forever and never be satisfied. And give serious thought to WHAT you are willing to trade off when buying your first home. It’s a little like those baseball trading cards.
Fees, Fees, Fees – Where Does it Stop?
Buying your first home can be a daunting experience. Just the thought of spending hundreds of thousands of dollars and having a monthly payment of $2500 or more is scary. Some folks decide to keep renting rather than have a higher payment – understandable, although the trade off is NOT having the tax advantage, building your credit or adding to your wealth by building equity.
New buyers are often NOT aware of some of the fees to expect on top of paying a monthly mortgage payment. better to know in advance so you are prepared, and can effectively manage your personal budget.
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Here are some additional fees you MAY have to pay:
- Home owner association fees (HOA) – these can range from perhaps $60 per month to $300+ per month. Not tax deductible but check with an accountant
- Home owner’s insurance – may be escrowed (collected monthly as part of your mortgage payment or paid separately – varies with the lender. This could be $500 – $1000 annually, maybe more.
- Utilities – you probably pay most or all of this already if you are renting but don’t forget them. And in a condo or house they could be more (gas, electric, water, sewer, trash)
- Private Mortgage Insurance (PMI) – if you are financing more than 80% of your purchase (i.e., your down-payment is LESS than 20%), you likely will be required by your lender to have PMI, which protects the lender in the case of a default. I am not advocating a particular bank but here is a good informational piece on PMI.
- Property taxes – you can’t avoid them and they can really add up. Find out how much they are (but a ROUGH estimate here in California is 1% of the purchase price – they vary widely by community). These are normally part of your monthly payment (escrow) so the bank can pay the taxes when they are due. YOU are responsible for getting the tax bill to your bank in time to make the payments.
- Mello Roos – some areas (especially new subdivisions) will levy additional fees called Mello Roos. Again, not avoidable and they can last for years. Check with an accountant regarding tax deductibility.
San Marcos Communities to Consider
Many first time home buyers find that affording a home near the coast, such as in Carlsbad, is beyond their budget. They often seek to buy homes inland, such as in San Marcos.
Knowing what communities offer the types of housing that fit your budget will help you in your search, and of course having the assistance of a knowledgeable agent will go far in reaching that objective.
If you are looking in the North County San Diego area, San Marcos MAY be a great place for you to look for housing – there is a good selection even under $400,000.
Two communities specifically to consider for detached homes are Fiesta and Hampton Hill. Read more about these two villages here.
What You Should Know About Termite Inspections
If you are buying a new home, it is pretty likely the seller of the home you are buying will have a termite inspection done.
This is negotiated as part of your purchase offer, the reason being that MOST lenders will require a certificate of clearance that your home does not have a propblem with termite infestation. Termites are common here in Carlsbad and other areas of Southern California, so this is pretty common and you should not be overly concerned.
But it’s important to know about termites and what is being done to eradicate them. And since you may see a circus-like tent around in a neighborhood, you might be wondering what this is about.
Short Sale vs. Foreclosure Sale vs. REO
There is lots of interest in properties that are commonly called distressed properties, as well as concern about the number of these that keep appearing on the market.
Sometimes there is confusion about what these different properties are. So here is a BRIEF description.
SHORT SALE – when the home owner owes more than the home is worth and is in a hardship situation financially where a sale must happen (loss of job, divorce, etc.). Just because a seller WANTS to sell does not mean the lender(s) will approve, and a hardship must be demonstrated and documented.
FORECLOSURE – once a homeowner reaches a point where s/he cannot pay the mortgage and (normally) is behind 3 payments, a NOTICE OF DEFAULT (NOD) is filed by the lender. Often an owner already has the home on the market as a short sale. Foreclosure proceedings vary from state to state.
REO – Real estate owned properties (also commonly called bank owned properties). If a foreclosure property does not sell, it may be auctioned off (e.g., a trustee’s sale here in CA). If it is not bought then, the house becomes an REO that is “owned by the bank” and sold BY the bank on the open market.
Get Organized for Your Move – The Move Itself
You will be moving at some point since you are thinking about, or in the process of, buying a new home.
If you have been reading you know we talked earlier about getting organized. Here my guest blogger, Kathi Burns, Founder of addSpace to Your Life!, talks about getting organized for the move itself. There are some great tips (this is the first of 3 articles on moving) – you may want to bookmark it or print it out for the future.
And feel free to pass along to others who may need the advice.
If you find this information helpful, I’d love to hear about it.
2 Listings to Consider – Carlsbad and San Marcos
I don’t like to use my blog here for marketing my listings – my website is there for that.
But just in case you are actively seeking a home or condo here are links to these great listings. Feel free to share.
ENJOY THE SUPERBOWL!! Who are you rooting for?
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Well, They Did it Again!
As you probably know, the FEDS reduced the interest rate again just a short time after lowering it in early January.
Keep in mind that this does NOT mean that the mortgage rates will go much further down – they are already lower than they have been for years. If you are planning to buy, NOW might be a great time to get going, find a house, get your loan approved and lock in. Sitting around and waiting might mean a higher interest rate, which could offset any downward shift in home prices.
