This Is The Expense I Never Saw Coming as a First-Time Homeowner
A risk-taker I am not. So when I bought my first home in 2011—still skittish from the recent recession—I wanted to safeguard myself. I saved up 20 percent for a down payment. I opted for a 30-year fixed-rate mortgage because knowing my payments wouldn’t change over the life of my loan gave me warm and fuzzy feelings. I also figured buying a newly constructed home with appliances under warranty would afford me some time to replenish my savings without having to worry about my water heater breaking down or my dishwasher opting for an early retirement.
But here’s a universal truth about homeownership: Unexpected costs will inevitably pop up. Mine came in the form of a special assessment from my homeowner’s association a few years after I moved in. It was $2,500 due within 60 days and it was used to cover things like a paint job (I live in a townhome) and to replenish our reserves. It felt a lot like drawing one of those unfortunate Community Chest cards in Monopoly.
So, how exactly do you plan for an HOA special assessment? It’s a little tricky because unlike HOA dues, an assessment isn’t a monthly or annual fee. It’s an extra cost, typically to cover maintenance projects.
Here’s what experts say first-time homebuyers should know about special assessments.
How to plan for unexpected HOA costs
When you’re buying a home that’s part of an HOA, you’ll easily be able to obtain information about how much regular assessments are and how often they are charged. To glean additional information, and to get a sense of whether any special assessments may be in the pipeline, ask specific questions, advises David Barnhart, vice president, condominium management at The Habitat Company in Chicago.
“Most property managers and board members are happy to discuss the financial needs of their associations,” Barnhart says. “Try to reach out to them.”
Here are some of the questions Barnhart suggests asking:
- What is included in the monthly assessment?
- What has been the history of assessment increases over the past 5 to 10 years?
- Should I expect to pay any special assessments over and above the regular monthly assessment?
- How large is the reserve account, and is it enough to cover upcoming reserve expenses without a special assessment?
- Is there a reserve study? (Psst, a reserve study informs the association of upcoming capital expense needs and allows the board to plan reserve funding levels for several years, Barnhart explains).
If you notice some of the common areas have fallen behind on maintenance, it might be a sign that the HOA needs to raise cash in the future, which you would be helping fund, he says.
“It’s a good way to find out if there is anything planned that may require an assessment,” he says.
Have a repair fund
In my own scenario, I moved into a new property in a row home and the HOA was newly established, so it was tough to do some of the detective work to determine what kind of costs outside the monthly HOA fee would come along.
A friend of mine recently purchased an apartment in Denver, and shortly after moving in, was charged a $300 assessment for boiler repairs. Not a huge cost, but also not a fun way to be welcomed to the neighborhood. Another friend who owns a unit in a 1940s-era Seattle condo building got hit with a hefty $10,000 assessment to fully replace plumbing systems.
Special assessments need to be acknowledged by home buyers, because failure to pay them could land you in some hot water. You could be slapped with late fees or fines, be prohibited from using common areas or amenities, and face liens or even foreclosure for non-payment, explains Steve Sexton, a financial consultant and the CEO of Sexton Advisory Group.
To help buyers brace for potential repairs, he recommends having a home inspector or contractor provide you with an estimate of upcoming repairs. Ask how long you can expect the roof to last, when will the exterior need a new paint job, and what other maintenance projects should you plan for in coming years.
“Based on what these maintenance costs could look like, you can determine how much to set aside for a separate home maintenance and repair fund,” Sexton says. “Setting aside a few dollars every month for future home repairs like painting, roof or window repair, or replacement or HOA special assessments would mitigate the financial impact of an assessment or home maintenance emergency.”
While these costs vary greatly from homeowner to homeowner, a simple and realistic goal is to set aside a minimum of $30 a month in a home repair fund, he says. That way, you’ve got some money stashed away should a special assessment hit.