How Do HOA Fees Work?

The Smith family was thrilled to finally be moving into their brand-new townhome in the suburbs. After months of house hunting, number-crunching, and packing up their old place, they were ready to settle into their dream community.

However, shortly after getting the keys, the Smiths received a letter from the neighborhood homeowners association (HOA) with some unexpected news – they would be required to pay $100 per month in HOA fees.

“HOA fees? What are those?” Mr. Smith wondered. “I thought we just had to worry about our mortgage payment.”

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The Smiths had heard of HOAs before, but didn’t realize their new neighborhood had mandatory fees to live there. As new homeowners, they had a lot of questions:

  • Why do HOAs charge these fees in the first place?
  • What do the fees actually cover and pay for?
  • How are the fee amounts determined?
  • When and how often do we have to pay them?
  • What happens if we don’t pay the HOA fees?



If you’re like the Smith family and feeling a bit confused about HOA fees, don’t worry – you’re not alone. While Homeowners Associations have become increasingly common, especially in newer master-planned communities, the mandatory fees can catch some homebuyers off guard.

In this guide, we’ll explore exactly how HOA fees work and answer questions like:

  • What types of services and expenses do the fees cover?
  • How are fee amounts calculated and budgeted by the HOA?
  • What options do homeowners have for paying the fees?
  • Where does all that fee money actually go?

We’ll also review some frequently asked questions about HOA fees and examine the pros and cons of living in an HOA community with these perpetual fees. Plus, we’ll take a look at how you can make sure you’re paid up on your HOA online payment fees and how to handle any disputes that may arise.

How HOA Fees Fund Community Operations and Maintenance

The fees that all homeowners in a community pay into their Homeowner Association (HOA) provide vital funding that allows for the upkeep, improvement and operation of shared facilities and common areas. These fees pay for necessary services and projects that maintain the community’s assets and keep its amenities functional and attractive.

Common Funding Sources for HOAs

  • Grounds Keeping and Landscape Management: These fees cover the cost of routine services like lawn mowing, bush and tree trimming, sprinkler system maintenance, and the replacement of dead plants/bushes.
  • Utility Expenses: Operating expenses cover utility service costs for common areas – water, gas, electricity, trash/recycling pickup, etc. The fees support their proper systems, usage, and upkeep.
  • Common Area Management: Rules enforcement, administrative personnel, and other management services needed to keep community facilities running efficiently.

Common Areas and Amenities Funded

  • Playgrounds and Park Areas: The fees enable routine operating costs like trash/recycling pick-up, landscaping services, and maintaining the playgrounds, fields, and open spaces available to all.
  • Community Clubhouses and Centers: Paid staff, equipment, and supplies needed to run community centers, clubhouses, tenant services centers, or community pool areas.
  • Roads and Parking Areas: These fees cover costs associated with maintaining communal parking areas, driveways, access roads, gate security systems, and lighting/utilities.



There are also HOA fees for townhouses, condos, or single-family homes with shared amenities that cover the operating costs of those communal facilities and services. These costs ensure proper long-term care and maintenance for common areas and amenities available to all residents. Some examples include:

  • Clubhouses, community rooms, and tenant services offices
  • Security gate/entry systems and services
  • Trash/recycling collection services and utilities

Having dedicated HOA maintenance fees ensures effective long-term upkeep and sustained property values for individual homes and common areas. Like the old saying goes – you get what you pay for!

How HOA Fees Are Calculated and Changed

How HOA Fees Are Calculated and Changed

While HOA fees may seem like a fixed, never-changing cost of homeownership, the reality is that these fees can fluctuate based on the association’s budget needs and operating costs. So how exactly are the fee amounts determined each year?

The HOA Budgeting Process

Each year, the HOA board works with professional management companies and accounting firms to draft an annual operating budget and outline expected revenues and expenses for the upcoming fiscal year. This budget factors in costs like:

  • Maintaining all common areas and amenities
  • Utilities and services for shared facilities
  • Security, landscaping, and garbage removal
  • Insurance premiums and taxes
  • Administration, management fees, and payroll
  • Contributions to reserve funds

By estimating all their expenses, the HOA can then determine how much total revenue (via homeowner fees) is needed for the year ahead. The total budget amount is divided among all properties to calculate each owner’s share of the fees.

How Fees Can Change

Even with diligent budgeting, circumstances may require the HOA to adjust fees during the year or for future years, leading to increases or decreases. Some common reasons for fee changes include:

  • Overall inflation impacting service/labor costs
  • New maintenance projects or repairs
  • Changes to provided services/amenities
  • Insufficient reserves requiring bigger contributions
  • Underestimated costs in the original budget
  • Available funds from other revenue sources

Most HOAs have an approval process where any fee increase over a certain percentage must be voted on by homeowners before implementation.

Special Assessments

In certain cases, if a major unforeseen expense arises that wasn’t budgeted for, the HOA may need to charge a “special assessment” in addition to regular fees. These one-time charges help cover large capital expenditures like:

  • Replacing all roofs in the community
  • Repaving all roads and parking lots
  • Repairing damage from storms, fires, or other disasters
  • Renovating or replacing outdated pool/amenities
  • Funding shortfalls from bad investments or mismanagement

Special assessments can run into the thousands of dollars per household, so HOAs aim to avoid them through diligent budgeting and reserve planning when possible. However, they remain an option for addressing major expenses.

While the specific dollar amounts can vary widely based on location, amenities, and other factors, it’s clear that HOA fees are not arbitrary figures. They are carefully calculated each year based on the association’s projected operating costs and needs. And those fees are subject to change based on shifting expenses and financial realities within the community.

What Do HOA Fees Cover?

One of the biggest questions new homeowners in HOA communities have is, “What exactly am I paying for with HOA fees?” The dues paid to your homeowners association fund a wide range of services, maintenance, and amenities that enhance your neighborhood’s quality of life and protect property values.

While specific coverage can vary based on the community’s covenants and available amenities, here are some of the most common expenses that HOA fees routinely pay for:

Exterior Building Maintenance

HOA fees for townhomes, condos, and other attached housing cover the repair, replacement, and upkeep of exterior surfaces like roofing, siding, painting, and gutters. They also handle maintenance of any grounds or landscaping directly surrounding the buildings.

Landscaping and Groundskeeping

Fees fund the contracted services and personnel for maintaining common grassy areas, trees, shrubs, flowers, and community entrances/monuments. This includes routine mowing, weeding, trimming, mulching, and replacing dead plants/trees.



Amenity Operations and Maintenance

Communities with amenities like pools, fitness centers, parks, sports courts, and playgrounds use HOA dues to staff, maintain, and supply these common areas with everything needed for operation.

Security Services

If your HOA employs security guards, installs security cameras, gates or other safety measures, the associated costs are covered by residents’ monthly fees.

Utilities for Common Areas

From keeping the streetlights on to heating the clubhouse pool, fees are paid for the water, gas, electric, and other utility bills for operating shared spaces and amenities.

Insurance Premiums

HOA fees cover the cost of insurance policies that protect the association and residents from liability related to common areas. This can include property, general liability, Directors & Officers, and other crucial coverages.

Professional Management Services

Many associations employ professional management companies or on-site staffers to handle day-to-day operations, collect fees, enforce rules, prepare budgets/reserves, and manage vendors. These labor costs get billed back to residents.

Reserve Fund Contributions

HOA fees funnel money into dedicated reserve accounts each month to cover future major repairs and replacements. This ensures funds are available down the road for large-scale projects like repaving roads, reroofing buildings, replacing amenities, and more.

The specific percentages may vary, but HOA fees essentially allow the shared costs of operating and maintaining your entire community to be mutualized and paid for by all residents who use those common areas and services. The fees help preserve aesthetics, property values, and quality of life for all.

How Are HOA Fees Paid?

Once you understand what homeowners association fees cover in terms of expenses, the next logical question is—how do I actually pay these fees as a resident? HOAs provide several different options for owners to pay their monthly, quarterly, or annual dues.

Payment Frequencies

The cadence for when fees are due can vary based on the HOA’s policies, but the most common structures are:

  • Monthly (due each month, e.g., $100/month)
  • Quarterly (due every three months, e.g., $300/quarter)
  • Annually (full year’s fees due at once, e.g., $1200/year)

Some HOAs provide modest discounts if fees are paid annually rather than monthly or quarterly. The HOA’s governing documents will specify the required frequency.

Payment Methods 

Homeowners typically have multiple ways to submit their HOA fee payments:

Online Payments 

Most HOAs now use online payment systems to collect HOA fee that allow owners to pay fees via electronic bank transfer or credit card. These portals often allow for one-time or automatic recurring payments to be set up.

Mail-In Checks 

Here’s the old-fashioned way – owners can mail physical checks to the HOA’s designated payment processing center by the scheduled due dates.



In-Person Payments 

For homeowners visiting the HOA’s offices or community center, there is usually an option to pay fees in person via check, cash, or credit card.

Automatic Mortgage Payments 

In some cases, HOA fees can be bundled into your overall monthly mortgage payment, with the lender remitting the HOA’s portion from your payment.

Late Fees and Consequences

HOA fees are mandatory, so owners who fail to pay on time face a range of potential consequences:

  • Late Fees – Most HOAs charge late payment penalties, often a fixed fee or percentage
  • Interest Charges – Unpaid balances may also accrue interest charges monthly
  • Deactivation of Privileges – Amenity/facility access may be suspended
  • Liens on Property – After extensive non-payment, an HOA can file property liens
  • Foreclosure – As a final recourse, HOAs can foreclose on homes to recover debts

Due to these potential legal hassles, most owners opt to set up automatic payments or pay fees as soon as they are invoiced to avoid any issues. The specific policies and fees will be outlined in the community’s governing documents that all owners receive.

Where Do Your HOA Fees Go?

Where Do Your HOA Fees Go?

With HOA fees ranging from a few hundred to over a thousand dollars per month in some communities, you may wonder – where is all that money actually going

While the specific expenses can vary, homeowners association fees fund operating budgets for maintaining and enhancing your neighborhood.

The Operating Budget

Each year, the HOA board works with professional management and accounting firms to draft an annual operating budget outlining all projected revenues (fees collected) and expenses for the upcoming fiscal year.

Some common operating expense categories this budget covers include:

  • Groundskeeping and landscaping services
  • Utilities for common areas (water, electric, etc.)
  • Security patrols or entry gates
  • Insurance policies
  • Services like trash removal or snow clearing
  • Amenity operations (pool, gym, parks, etc.)
  • Administration and professional management fees

This operating fund is essentially the HOA’s checking account from which it pays its regular, recurring bills and service providers throughout the year.

Reserve Fund Allocations

However, a portion of the fees collected don’t just get spent right away. Responsible HOAs also contribute funds annually into dedicated reserve accounts. These reserves are built up and invested over time to cover the community’s major future expenses like:

  • Replacing roofs on residential buildings
  • Repaving roads and parking lots
  • Repainting/repairing building exteriors
  • Renovating or replacing old amenities
  • Funding deductibles after major damage

Most HOAs aim to allocate 10-35% of their budgets to reserves based on anticipated costs from reserve studies performed regularly by contractors.



Controls and Transparency

To prevent mismanagement or misappropriation of funds, HOAs have rigid financial controls and reporting requirements:

  • Annual audits from third-party firms
  • Disclosure of budgets/financials to all owners
  • Policies governing check approvals and account access
  • Regulations requiring buffer/minimum reserves

Many states also have dedicated agencies overseeing HOA finances and operations to ensure proper use of fees collected from residents.

So while your monthly HOA payment may seem steep, that money gets carefully budgeted, allocated and invested back into your community’s longevity. Routine audits and disclosures also provide homeowners with transparency around where their fees are going.

Don’t Miss Your Chance To Make A Difference In Your HOA

Don’t Miss Your Chance To Make A Difference In Your HOA

Remember the Smith family who received that $100 per month HOA fee invoice shortly after moving into their new townhome community?

While they were initially caught off guard by these added homeownership costs, after reading this guide, the Smiths now have a much better grasp of what these HOA fees go to and how their investment helps make their neighborhood that much better.

While no one loves adding another mandatory fee to their budget, understanding the mechanics of HOAs makes the fees feel like less of a baffling expense. At least for the organized, well-run associations, homeowners can clearly see their money maintaining and enhancing their community.

Of course, HOAs and fees aren’t perfect. Issues like potential mismanagement, crippling special assessments, and lack of resident control remain reasonable concerns. But starting from an educated perspective helps owners make the right community choice for their needs.

At the end of the day, HOA fees are simply the realities of shared ownership and collective maintenance. With some savvy and involvement, owners can ensure they get their money’s worth while keeping their community a desirable place to call home.


Are HOA fees included in my mortgage payment?

No, HOA fees are separate and paid directly to the homeowners association, not as part of your monthly mortgage payment to your lender. You’ll make this second recurring payment independently.

Do HOA fees count towards debt-to-income ratio?

Yes, when calculating your debt-to-income ratio for mortgage qualification purposes, your expected HOA fees will be factored in as a recurring monthly expense along with costs like your principal, interest, taxes and insurance.

Can HOA fees be tax deductible?

There are some cases where HOA fees may be partially tax deductible, such as if you own a rental property or qualify to deduct them as an unreimbursed business expense. However, for primary residences the fees are not deductible.

What are the pros of paying HOA fees?

The pros include shared maintenance costs, access to amenities, preserving property values through consistent upkeep, and not having to worry about major repairs individually. However, the perpetual fees can be a financial con.

Why might HOA fees be higher in certain areas?

Fees tend to be highest in luxury communities with extensive amenities like pools, golf courses and clubhouses. High cost-of-living areas and communities with aging infrastructure needing more maintenance also command higher fees.


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