Buying a condominium offers many conveniences, but expect to pay your share of the cost for shared services and amenities. The homeowner association fees, or HOA fees, will increase your monthly housing expense, which your lender takes into account when analyzing your loan figures. To understand how the HOA payment affects your loan, calculate your principal, interest, taxes and insurance, or PITI, with HOA fees. The sum equals your total housing debt, which the lender then compares to your monthly gross income.
Gather your PITI figures, starting with the proposed loan principal and interest payment. Although your loan may or may not include principal payments at the beginning of the loan repayment term, your lender calculates your PITI to include a principal amount each month. Your principal and interest payment is based on the loan amount and a specific interest rate paid over a certain loan term, such as 30 years. You can use an online mortgage calculator to calculate principal and interest payments once your lender provides the loan amount, interest rate and loan term you qualify for.
Ask your homeowner's insurance agent for a quote for the specific property you plan to insure. Although HOA fees usually include hazard insurance coverage for the building, you may also have to buy insurance for your individual unit. Homeowner's insurance covers certain types of damage, vandalism and other instances of personal property loss or damage. Your agent can provide the estimated annual premium based on the home's address and the amount of coverage needed. Divide the annual premium by 12 to get your monthly homeowner's insurance cost.
Determine your annual tax bill by multiplying your estimated tax basis or rate by the home's purchase price. In most areas of the country, the tax rate ranges between 1 percent and 1.25 percent; however, your tax rate depends on where you buy. Consult with a title company or the local tax assessor's office for the exact rate that applies to you and your property. Also, certain newer communities may assess an additional tax for schools and public services particular to that community. These special tax assessments differ from an HOA fee. Divide the estimated annual tax bill by 12 to get your monthly property taxes.
Add the sum of Steps 1, 2 and 3 to your monthly HOA fee. You can obtain the exact fee from the HOA representative or the seller, in writing, as part of the seller's disclosure package. The HOA may also disclose the fee in its governing documents or in a questionnaire, which your lender may send directly to the HOA on your behalf. The sum of these fees equals your total housing expense.
Items you will need
- HOA monthly fee
- Proposed loan payment
- Estimated annual property tax amount
- Homeowners insurance premium
- When buying a home that is subject to a HOA, request in writing -- via your purchase contract -- to see the HOA's governing documents. The covenants, conditions and restrictions, or CC&Rs;, outline the HOA's operations and rules. Review the HOA's operating budget to ensure fiscal soundness and verify reserve amounts. Read the HOA's minutes which outline financial transactions and other issues discussed in prior meetings. Look for details that indicate recent or upcoming HOA fee changes, as these ultimately affect your total housing payment. A condo questionnaire, which you order directly from the HOA or a third-party affiliate, may also provide information about fee changes.
- The PITI and total housing expense you calculate today may differ from next year's. Your homeowners association, as well as your property taxes and homeowners insurance premium may fluctuate from year to year. The HOA generally sets the HOA fee for a year or several years down the road, but unexpected expenses, such as major structural repair work and insufficient HOA reserves, may lead to a special assessment. Property taxes change according to revisions to your property that change its value or value reassessments conducted by your tax authority.
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