Two extra costs often surprise buyers: homeowners association (HOA) dues and special taxes such as Mello-Roos. Neither is hard to understand, and both are easy to check before you make an offer. Here is how each one works.
HOA dues
An HOA is the organization that owns and maintains a community's shared spaces, such as a pool, landscaping, private roads or the outside of a condo building, and sets rules for the community. Owners pay regular dues, and sometimes a special assessment when a big repair or project needs extra funds.
When you buy in an HOA, California law has the seller provide a package of association documents. The California Department of Real Estate points to the parts worth reading closely: the governing documents (CC&Rs, bylaws and rules), the budget and financial statements, and the statement of current dues, special assessments and unpaid amounts. It stresses that financial documents can show future costs, for example if reserve funds are thin or are being used on a lawsuit. The agent's job is to explain what each one means for you: DRE: Common Interest Developments.
Questions to ask about an HOA
- What are the dues, and what do they cover? How often have they risen?
- How well funded are the reserves for big repairs, and is there a recent reserve study?
- Are there any special assessments now, approved, or being discussed?
- Is the association in a lawsuit, and what would it cost?
- What are the rules on rentals, pets, parking, remodeling and exterior changes?
- Does the community's master insurance policy cover what I will need, and what is the deductible?
Mello-Roos and other special taxes
Mello-Roos is a special tax charged in a Community Facilities District (CFD), often in newer neighborhoods, to pay for streets, schools, parks and other public improvements. It is collected with your property tax bill and paid in the same two installments, and it is separate from the 1% base tax and the voter-approved bonds. Some districts also have other assessments for the same purpose.
Unlike the base property tax, the 2% yearly cap from Proposition 13 does not apply to a Mello-Roos tax. How it can change, and when it ends, is set by that district's own rules, so the amount and end date for each home matter. A seller who is in a CFD generally has to make a good-faith effort to give you a notice of the special tax, and anyone can ask the district for it.
How to check
- Look at the seller's current property tax bill, which lists each special tax and assessment by name.
- Review the preliminary title report, where these liens appear.
- Ask the listing agent, or Rudy, for the district's Notice of Special Tax: it shows the yearly amount, how it can rise and when it ends.
- Tell your lender about it early, since the tax counts in your monthly costs when a lender figures what you can afford.
Put the number in your budget
Use the special-tax and HOA boxes in Compare Two Homes or the monthly payment calculator to see what a home with a lower price and a higher HOA or Mello-Roos tax really costs each month.
Talk to a lender. Rates, loan programs and approvals come from lenders, not from websites or real estate agents. Talk to your own mortgage broker, or use our preferred lender, Point Mortgage Corporation (NMLS #231073), at (619) 475-4095. You are always free to choose any lender you like, and you can verify any lender’s license at nmlsconsumeraccess.org.
General information, not legal, tax or lending advice. Programs, rules and rates change, so confirm current details with the official source, your lender and your advisors.
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