Buying a Condo? How to Review HOA Documents

When you buy a condo, you are buying more than a unit. You are also joining a homeowners association that manages shared property, sets rules and collects dues. The health of that association affects your costs, your lifestyle and the future value of your home. Reviewing HOA documents carefully is one of the most important steps in buying a condo.

Disclosure requirements vary by state. In California, sellers in common interest developments must provide certain documents. Ask your agent or attorney which documents you should receive and your timeline for reviewing them.

Key documents to request

CC&Rs (Covenants, Conditions and Restrictions)

The CC&Rs define the rights and obligations of owners and the association. Look for rules on rentals and short-term rentals, pets, renovations, parking, noise and the use of balconies or patios. If you plan to rent the unit out someday, check for rental caps or minimum lease terms.

Bylaws

The bylaws explain how the association operates: board elections, voting rights, meetings and how rules are changed.

Rules and regulations

These are day-to-day rules, such as pool hours, move-in procedures, trash, bike storage and guest parking.

Annual budget

The budget shows where dues go: management, insurance, utilities, landscaping, repairs and contributions to reserves. Compare budgeted figures to actual spending if available.

Reserve study

A reserve study estimates the remaining life and replacement costs of major components, such as roofs, elevators, paving and plumbing, and how much the association should be saving. Look for the percentage funded: a low funding level may mean future dues increases or special assessments.

Meeting minutes

Minutes from recent board meetings are often the most revealing documents. Look for discussions of leaks, structural issues, lawsuits, insurance problems, planned projects, owner complaints or upcoming assessments.

Financial statements

Review balance sheets and income statements. Check the level of delinquent dues: if many owners are behind, other owners may bear the cost.

Insurance

Ask what the master policy covers and what you need to insure yourself. Some associations cover “walls out” while owners cover interiors. Ask about the master policy deductible and whether earthquake coverage exists. In some cases, a large deductible can be passed on to owners.

Litigation and special assessments

Ask whether the association is involved in any lawsuits and whether any special assessments are planned or ongoing. Lawsuits can affect financing and insurance.

Questions to ask

• How much are dues, and how much have they increased in recent years?
• Are any major projects planned in the next few years?
• What percentage of units are owner-occupied versus rented?
• Is the building professionally managed or self-managed?
• Have there been recent issues with water intrusion, plumbing or structural concerns?
• What utilities, if any, do dues include?
• Are there restrictions on renovations such as flooring changes?

Financing considerations

Some loan programs have requirements for condo projects, such as owner-occupancy rates, budget reserves, insurance and limits on commercial space. If you plan to use an FHA or VA loan, ask your lender whether the project is approved or eligible. HUD provides a public FHA condominium lookup.

Red flags

• Low reserves compared to the reserve study recommendation
• Frequent or large special assessments
• High delinquency rates
• Ongoing litigation
• Recurring complaints in minutes about unresolved repairs
• Difficulty obtaining insurance for the building

A red flag does not always mean you should walk away, but it should prompt more questions and a careful look at your budget.

Build HOA costs into your budget

Include dues in your monthly cost estimate, along with a cushion for increases. Our mortgage calculator includes a field for HOA dues. For more on the overall process, see our steps to buying a condo.