What the hell is an HOA and why do I need to pay it?
If you’ve ever browsed for homes, you’ve definitely seen an HOA fee listed. If you’ve looked in Chicago, you probably saw fees anywhere from $200 all the way to $1,900. If you’ve ever wondered what an HOA is, why you pay it and how to calculate it into your monthly costs, this post is for you.
What goes into HOA (Homeowner Association) fees?
HOA fees/dues typically include upkeep of the building such as maintenance of the exterior (windows, roofing), maintenance of the interior amenities (gym, pool, elevators) and towards paying a door person, concierge or on site managers. You typically pay this as a separate monthly cost from your mortgage directly to your HOA.
Other than maintenance, your association fees often include services for inside your unit such as heat, water, cable and TV. More often than not, the only monthly bill you will be paying in addition to your HOA will be your electricity bill.
Now you may be thinking, “okay that makes sense, but why is it that some HOA dues are much higher than others?!” Outside of factors like the above, a big contribution to fees vary by unit. Yes, two units in the same building can have over a $100 difference in HOA. So why is that?
Why are some HOA fees so vastly different in each unit in one building?
Some things that will contribute to varying HOA’s include:
- Your view: If you face the lake or have unobstructed views.
- Square footage: A 2 bed vs 1 bed will have a higher HOA.
- Location within the building: Corner units or penthouses may carry higher fees.
- Balconies: yes balconies increase your HOA. More sq ft = more maintenance.
But ultimately what determines your HOA is what’s called your ownership percentage. That is your fractional share of the building’s common elements determined by the developer in the condo’s governing documents, usually based on unit size, location, or value, and dictates your share of fees, assessments, and voting power. It’s found in the association’s declaration and ensures total ownership across all units equals 100%, impacting how much you pay for upkeep and major repairs like a new roof. You will learn about your ownership percentage once you are under contract and you’ll also find out about any special assessments that can increase your HOA (this is why it’s important to work with a realtor that knows how to check this!)
Why are some HOA fees different depending on building type?
When you live in a high rise, there is much more to maintain than if you were living in a mid rise or walk up. There are also many more units to maintain. Usually high rises come with more amenities such as an exercise room and receiving room. Meanwhile, walk ups are usually in the mid $200s range but don’t have any amenities or a doorman or bike room.
To determine what you are willing to pay, you should look at your lifestyle, especially if location isn’t a factor for you. Are you a regular gym goer and will benefit from a gym inside your building? Do you not care too much about the convenience of a package room? If you’ll never swim, do you really want to pay each month to maintain a pool you won’t use? All of these are important to consider.
Why are some HOA fees different depending on location?
In Chicago, as a general rule HOA get higher when you are closer to the lake and city. Another reason the HOA could be high is because the building is older. When a building is older, different materials are required for keep up. That’s why you might see vintage pre-war buildings in Gold Coast that have an HOA of $1,600 yet no discernable amenities – you’re essentially paying for infrastructure and preservation. Plumbing, electrical systems, boilers, elevators, masonry, and roofs are older and more expensive to maintain or replace. These buildings often need ongoing repairs rather than occasional upgrades.
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How do I know what HOA I can afford?
Start by looking at your full monthly number, not just the purchase price. HOA dues are part of your fixed housing cost, the same way your mortgage payment is. That means they directly affect what you can comfortably afford month to month.
I always recommend talking to a lender early on. When you speak with a lender, tell them the HOA range you are seeing. They factor HOA dues into your debt-to-income ratio, which helps determine your max purchase price. A $500 HOA can lower your buying power compared to a $250 HOA, even if the condo prices are the same. This conversation upfront prevents falling in love with a place that does not actually fit your numbers.
