How lenders count HOA dues
When a lender looks at your application, it adds up your full monthly housing cost: principal, interest, property taxes, homeowners insurance, mortgage insurance if you have it, and HOA dues. That total goes into your debt-to-income ratio, or DTI, along with your other monthly debts.
Because dues sit right inside the housing payment, they count just as much as the mortgage itself when a lender decides how much you can borrow.
A simple example
Hypothetical example. Say a lender decides you can comfortably spend $2,500 a month on housing. In a home with no HOA, all of that can go toward principal, interest, taxes and insurance.
In a community with $300 a month in dues, only $2,200 is left for the rest. That smaller amount supports a smaller loan, so the price range you can shop in shifts down. The exact effect depends on your rate, term and loan type, and a loan consultant can run your numbers.
What the dues usually pay for
Dues can cover a lot or very little, so compare what you get. A higher fee that includes water, trash, exterior upkeep or building insurance may cost you less overall than a lower fee plus separate bills.
- Common areas, landscaping and snow removal
- Amenities such as a pool, gym or clubhouse
- Exterior maintenance or a master insurance policy in some communities
- Reserve savings for big future repairs
Before you buy: questions to ask
- What are the current dues, and how much have they risen in recent years?
- Is the reserve fund healthy, or is a big repair coming without the money for it?
- Are any special assessments planned or being discussed?
- What do the rules say about rentals, pets, parking, fences and exterior changes?
- Is the association involved in any lawsuits?
Special assessments
A special assessment is a one-time charge the HOA bills owners for a large cost, such as a new roof or repaving. If one is already approved, your lender may ask how it will be paid and may count it, depending on the loan program. If one is only being discussed, it is still worth knowing about before you sign.
When the project itself is reviewed
For condos and some attached homes, certain loan programs look at the project as a whole. A lender may ask about owner-occupancy levels, the budget, insurance and whether any single owner holds many units. If the project doesn't meet the program's standards, you may need a different loan type. Ask about this early so it doesn't surprise you late in the process.
