Consumer finance analyst stunned by large fees being paid
Housing affordability challenges are being discussed at all levels of the country right now, from individual brokerage offices all the way up to Capitol Hill.
One of the biggest pressures on affordability has been soaring costs tied to the escrow part of a mortgage payment. Property taxes and home insurance costs have skyrocketed, and in many cases, they have left homeowners with a mortgage payment that doesn’t remotely resemble the one they started the loan with.
Mortgage brokers do their part during the loan process to explain how these costs can increase, and how homeowners have to be prepared to budget for those increases.
There’s another growing cost that brokers are going to have to spend an increasing amount of time preparing buyers to pay. Homeowners association (HOA) fees and condo fees have also soared, and a new study from LendingTree puts a spotlight on how much homeowners are paying in big cities.
In the 100 largest metro areas, 17.5 million homeowners are paying HOA or condo fees as of 2024. This is 31.8% of homeowners in those areas. Among those, 2.6 million are paying fees in excess of $500 a month, or $6,000 a year.
Matt Schulz (pictured top), chief consumer finance analyst at LendingTree, said the amount of money being paid in fees is staggering.
“The amount of money that we're talking about, where some people are paying $500-plus a month for an HOA fee, that's just a wild number,” Schulz told Mortgage Professional America. “That's a really significant amount of money. And chances are, if you're paying that much, you're probably living in a high-end community or an upscale condo. But still, $500 a month is a lot of money.”
Educating homebuyers on fees
For buyers planning on living in big cities, the odds of paying higher fees are much greater. New York City has the highest percentage of homeowners paying fees of $500 a month or more at 53.4%. It is followed by Honolulu (52.4%) and Miami (39.5%). In NYC, 28% of homeowners are paying more than $1,000 a month in fees, with the median fee in the city at $558.
Schulz said most homebuyers, when they start checking online calculators for potential mortgage payment amounts, aren’t even considering HOA fees as part of the equation.
“It's a really, really important thing to consider, but it's probably something that not everybody does actually consider when they're running numbers through mortgage affordability calculators,” Schulz said. “HOA fees are not necessarily the first thing or even on the short list of things that immediately come to mind. But if you're talking about $500 a month, or even cut that in half, talking about $250 a month, that's a significant number on top of the rest of your mortgage payment.”
He said it is critical for mortgage brokers to make sure that homebuyers are not only aware of these fees, but also how these fees vary depending on where they are looking to buy a home.
“It's hard to overstate the importance of getting as much disclosure as you possibly can and as much information as you can when it comes to buying a home,” Schulz said. “There's certainly an onus on the consumer to do their homework, and at least kind of have a broad idea of what sort of fees could be involved.
“I would also think that on the broker side, there is value in the service that you are doing for your customer when you are giving them all the information they need. The last thing a business wants is a reputation for not giving somebody all of the information that they really need. I think erring on the side of disclosing more when it comes to these sorts of costs makes all the sense in the world.”
Avoiding properties with HOA fees
Some buyers are simply not interested in even looking at properties with HOA fees. According to the survey, among those who currently don’t live in an HOA community, 73% say they would be unlikely to choose a new home with an HOA. This includes 88% of baby boomers and 80% of Gen X buyers. In fact, 59% actively avoid HOA properties when house hunting.
While that is understandable considering the soaring costs, it can be problematic in large cities, which are already facing housing shortages. If you cut out homes that have HOA fees, buyers may find the remaining selection limited.
“If you are somebody who is just categorically opposed to paying an HOA fee, it is going to limit the inventory that you have to look at,” Schulz said. “I don't know that taking a stand that you would never pay an HOA fee is the wisest way to go. It’s about understanding what the return on investment is for that money, and kind of where that fits with your life and your lifestyle.”
For brokers advising potential homebuyers, Schulz said it’s not just a dollars-and-cents discussion with the buyer, but also about determining if the benefits offered by an HOA community outweigh those costs.
“For some folks, what you get with those HOA fees is absolutely worth it, even if it's a lot of money,” he said. “But for others, maybe not so much. There could be a young couple who is looking to buy a home in a big master-planned community, and there are huge HOA fees for pools, gyms, and parks in the neighborhood. Maybe they won’t use them now, but if they plan on having kids later, maybe they would get a ton of use out of it later.”
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
