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Comment: HOA's/COA's.

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wolfe's picture


As it sounds like you already know, these things bring a lot of future risk. Past performance is no indication of future performance. Just because dues and rules have been reasonable in the past, does not mean that they will remain that way.

The condo I live in (rent) had historically maintained low dues. Until they decided to start performing a lot of unnecessary projects which more than doubled the dues.

The fine print in the contract is critical to understand, but I would simply avoid them entirely.

Further, if you end up in a bad situation, and can't cover the mortgage, most banks will work with you for a while. HOA's/COA's won't. Check out the foreclosure auctions to see just how many of the foreclosures are initiated by the association. Dangerous.

Lastly, own what you own. He should be able to cover 20% of the cost of his purchase up front, have enough in savings to cover a year of mortgage payments, and preferably enough incoming cash flow to pay it off in two years if he tightened his budget. These rules, while smart, are rarely followed because nobody wants the home that they can afford.

For a $200,000 home at 5% interest for 30 years, you will pay around $2,127,035.60, JUST in interest. Yes, that is millions. So the question isn't whether the home is worth $200k. The question is whether it is worth $2.2M. I am going to take a wild guess and say, no, it isn't. That doesn't even include PMI or other ownership costs such as insurance.

My rules may sound extreme, but I have no intention of wasting $2M just because I want more home than I can afford. I have learned the hard way.

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