When you buy a new home, you have many fees on top of the price of the actual home — fees such as taxes, agent commissions, closing costs, and insurance premiums. If your home is part of a homeowners association, you are also responsible for any applicable HOA capital contribution fees. This may be a new term, so let’s find out how an HOA capital contribution fee might affect you.

What is an HOA Capital Contribution Fee?

While you may know about Homeowners Associations (HOAs), the term “HOA capital contribution” (also known as HOA working capital, initiation, or transfer) fee refers to the one-time fee that a new homeowner pays to the HOA to gain equity within the HOA. This fee is different from your regular HOA dues.

The reason HOAs require capital contributions is to supplement the HOA reserve fund, which is used to replace or repair long-term assets used by all owners within the HOA.

In most cases with new builds, the developer transfers control of the HOA to the homeowners and the HOA capital contribution fee is paid once by the first owner of the new home. However, other associations require that every new owner, not just the first one, pays the capital contribution fee.

To understand your obligation to pay the HOA capital contribution fee (or not), review the HOA’s governing documents.

What is the HOA Reserve Fund?

The homeowners association reserve fund, comprised of capital contributions from homeowners within the HOA, allows the HOA to make significant repairs or replacements to long-term assets that benefit all owners. The reserve fund is also used to assist the HOA and its owners in case of emergencies and disasters.

To evaluate whether or not an HOA has an adequately funded reserve, HOAs conduct what’s called a reserve study. The reserve study examines the finances and assets of the HOA and analyzes how much money an HOA should have in its reserves at any given time. While it sounds simple, a reserve study is a complex project that requires specialized skills, which is why many HOAs choose to outsource this process to a professional.

Reserve studies are not always required by law. State laws and HOA governing documents regulate reserve studies, so refer to those documents for guidance about your specific area or information about the health of an HOA's reserve fund.

What is the Difference Between an HOA Capital Contribution Fee and Regular HOA Dues?

The HOA capital contribution fee is a one-time fee that is used to fund the HOA reserve fund. In contrast, regular HOA dues are recurring and fund the HOA's operating expenses.

How Much Are Capital Contributions Fees for HOAs?

It’s understandable that you want to know how much you are obligated to pay for an HOA capital contribution. Unfortunately, there is no set formula for you to use to estimate this fee until you have a target property in mind because the capital contribution fee differs from HOA to HOA.

The HOA capital contribution fee can range from about $300 to thousands of dollars, and some experts say a good rule of thumb is to multiply the regular HOA dues by three.

To find a more precise number for an HOA capital contribution fee, request a copy of the HOA governing documents from the seller, seller’s agent, or the association directly. A buyer can negotiate this fee in an offer or counteroffer, but sellers have the right to refuse to cover this cost as part of the sale.

What Happens If You Don’t Pay the HOA Capital Contribution?

When you sign an agreement to buy a home that is part of an HOA, you are obligated to meet the HOA requirements stipulated in its governing documents, including paying a capital contribution fee. Failure to comply and pay the capital contribution fee may result in penalties such as late fees, interest on the debt, a lien on the home, or even foreclosure on the lien.

As you shop for your next home, it is important to work with your real estate agent and mortgage lender to understand all of the fees associated with each property. If you cannot or do not want to pay an HOA capital contribution fee, then it’s best to search for homes that do not belong to an HOA or do not have this fee.

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