If you plan to buy in a community with a homeowners association, you must understand how HOA fees affect mortgage qualification, your debt-to-income ratio (DTI), and your overall home buying power. Although HOA dues do not become part of your mortgage payment, lenders include them when calculating your total monthly housing expense. As a result, higher HOA fees can reduce your loan approval amount and limit how much home you can afford.

Therefore, before choosing a condo, townhome, or planned subdivision, evaluate both the lifestyle advantages and the financial impact.

What Is an HOA and How Do HOA Fees Work?

A homeowners association (HOA) governs and maintains a residential community. It enforces rules known as Covenants, Conditions, and Restrictions (CC&Rs) to preserve property standards and neighborhood appearance.

When you purchase within an HOA community, membership typically becomes mandatory. Consequently, you must pay recurring monthly, quarterly, or annual dues.

What HOA Fees Typically Cover

Expense Category	Examples of Coverage
Common Area Maintenance	Landscaping, sidewalks, green spaces
Exterior Maintenance	Roof, siding (often condos/townhomes)
Amenities	Pool, fitness center, clubhouse
Utilities & Services	Trash collection, snow removal
Insurance	Master policy for shared structures
Reserve Funds	Future repairs and capital improvements

These services can enhance convenience and preserve property values. However, they also increase your fixed monthly obligations.

Do HOA Fees Affect Mortgage Qualification?

Yes. Lenders treat HOA dues as part of your total housing expense, which directly affects your DTI ratio and borrowing capacity.

1. HOA Fees Increase Your Debt-to-Income Ratio (DTI)

Lenders calculate DTI by dividing your total monthly debt by your gross monthly income. This ratio helps determine your ability to repay the loan.

Your housing expense typically includes:

• Principal and interest
• Property taxes
• Homeowners insurance
• HOA dues

Even though you pay HOA fees separately, underwriters add them to your qualifying payment. Therefore, higher dues can push your DTI beyond program limits.

Example: How HOA Fees Change Your DTI

Scenario	Without HOA	With $400 HOA
Gross Monthly Income	$8,000	$8,000
Mortgage Payment	$2,500	$2,500
HOA Fee	$0	$400
Total Housing Cost	$2,500	$2,900
DTI Impact	Lower	Higher

As this example shows, a $400 HOA fee significantly increases your qualifying housing expense. Consequently, even strong earners may face tighter approval thresholds.

2. HOA Fees Reduce Home Buying Power

Because lenders cap DTI ratios, every additional dollar in HOA dues lowers the mortgage payment you can carry. In other words, higher association fees shrink your borrowing limit.

For instance, if a lender allows a maximum housing ratio of 43%, added HOA dues may force you to reduce your purchase price. Over time, this difference can amount to tens of thousands of dollars in buying power.

3. Lenders Review HOA Financial Health

For condos and certain townhomes, lenders evaluate not only the borrower but also the association itself. They often review the HOA’s financial stability before approving the loan.

HOA Review Factor	Why Lenders Care
Reserve Funds	Ensures future repairs are funded
Budget Management	Shows operational stability
Owner-Occupancy Ratio	Impacts loan eligibility
Pending Litigation	Signals financial risk

If the HOA lacks adequate reserves or faces legal issues, lenders may limit financing options. This situation becomes especially important for government-backed loans.

Are HOA Fees Included in Your Mortgage Payment?

No. HOA dues remain separate from your mortgage principal and interest payment.

However, some lenders escrow HOA fees along with taxes and insurance. Even when escrowed, those funds cover association obligations rather than reducing your loan balance. Understanding this distinction prevents confusion at closing.

FHA Loans and HOA Approval Requirements

If you plan to use an FHA loan for a condo purchase, the entire project often must meet FHA approval standards. Some associations choose not to pursue FHA approval because of stricter financial and occupancy rules.

Common FHA-related HOA considerations include:

• Minimum owner-occupancy percentages
• Required reserve funding levels
• Rental ratio limits
• Complete project documentation

Therefore, always confirm condo approval status early in your home search to avoid delays.

Do HOA Fees Help or Hurt Property Values?

A well-managed HOA often maintains landscaping, amenities, and shared infrastructure. As a result, communities may attract consistent buyer demand and preserve curb appeal.

However, high HOA fees combined with rising home values increase total monthly housing costs. From a mortgage qualification standpoint, that combination can narrow your affordability range. Balancing long-term value with monthly budget sustainability remains essential.

How to Prepare Financially for HOA Fees

Start by calculating HOA dues before you submit an offer. Then, ask your lender how those fees affect your DTI and maximum loan amount. Additionally, review the association’s budget and reserve statements to identify potential fee increases.

Proactive planning protects your approval and prevents last-minute surprises during underwriting.

The Bottom Line

HOA fees do not form part of your mortgage principal and interest. Nevertheless, they directly affect mortgage qualification because lenders include them in your debt-to-income ratio (DTI). Higher dues reduce buying power and may limit loan options, especially for condos.

Before committing to an HOA community, evaluate both the financial impact and the long-term lifestyle benefits. When the numbers align with your income and goals, you can move forward with confidence.

 

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