What’s an HOA Budget? Understanding Your Community’s Financials
A well-structured homeowners’ association (HOA) budget forms the backbone of a thriving community, guiding financial decision-making and safeguarding homeowners’ interests. More than 74 million Americans live in community associations—and they each depend on their community’s strong financial planning to preserve property values and quality of life.
So, what is an HOA budget? What should an HOA budget look like? And how should board members manage the budget? Read on to learn everything you need to know to lead confidently, keep members informed, and maintain smooth operations.
What Is an HOA Budget?
At its core, an HOA budget outlines expected income (usually from assessments and fees) and plans for expenses the association anticipates for the year ahead. It’s a spending blueprint for maintaining shared amenities, paying for landscaping, funding reserves for major repairs, and supporting the services homeowners count on.
What Does an HOA Budget Look Like?
A budget will look different for every community. However, a standard HOA budget covers three main categories:
- Projected revenue: Assessments, fees, and fines
- Projected expenses: Maintenance, insurance, and management
- HOA reserve fund contributions: Savings for future repairs or replacements
How to Create an Effective HOA Budget
What should an HOA budget look like in practice? Creating an effective HOA budget means being deliberate, data-driven, and cooperative. Consult with qualified professionals, including attorneys, certified public accountants (CPAs), and reserve study specialists, before making any financial or legal moves for your association.
Here’s a step-by-step HOA budget breakdown:
1. Start Early and Review Historic Information
Begin the budget process months before the fiscal year ends so you have enough time to review historic information. If the fiscal year ends in December, aim to begin in June or July. Go through financial statements from prior years and compare past projections with what actually happened. Use those variances to improve accuracy.
2. Reference Your Governing Documents
Every community association has unique governing documents, state laws, and financial circumstances that may impact budgeting and operations. Additionally, your HOA's bylaws, Covenants, Conditions, and Restrictions (CC&Rs), and state law may require specific reserve contributions, a timeline for meeting notices, or rules for special assessments. Make sure the budget plan complies.
LEARN MORE: A Breakdown of HOA Governing Documents
3. Form or Engage a Budget Committee
A budget committee focuses on gathering line items, evaluating vendor contracts, checking insurance, and verifying utility and vendor rate changes. When the committee provides a proposal to the board, the board can review it, amend it as needed, and adopt the finalized budget.
4. Itemize Revenues and Expenses
It may be tedious, but itemizing revenue and expenses is necessary to ensure accuracy. Some potential line items include:
- Revenue: HOA dues and assessments, late fees, initiation/transfer fees, and amenity rentals or fines.
- Expenses: Administrative fees (management, legal, accounting), operating expenses (landscape, utilities, common area upkeep), insurance, fixed costs (taxes, regulatory filings), and the reserve fund.
5. Consider the Reserve Fund
The reserve fund pays for large-scale, non-annual needs, like roofs, pavement, and pool refurbishment. Proper funding often depends on a reserve study. Review or update your reserve study regularly to confirm the budget reflects real-life expectancy and replacement cost estimates.
DOWNLOAD: The Complete Reserve Fund Handbook
6. Evaluate Vendor Contracts and Inflation Adjustments
Check whether contractors’ prices are increasing. Insurance premiums can rise. Utility rates might change. Allowing for inflation and negotiating or rebidding contracts can help avoid budget shortfalls.
7. Communicate with Homeowners
Transparency builds trust. Once the draft budget is ready, share it with your homeowners. Explain any assessment increases, reserve contributions, or significant capital improvements. Gather feedback where governing documents permit.
Common HOA Budgeting Challenges
Here are some of the most common budgeting challenges for HOAs, and what you can do to overcome them.
Ignoring Delinquencies
Delinquency can erode the community’s financial base over time. Collecting delinquent accounts is a must. Set expectations and enforce the governing documents to keep your community financially stable.
Underfunding the Reserve Fund
Up to 70% of HOAs have underfunded reserves. While many HOAs don’t set aside enough for long-term repairs, you can do your part by scheduling a reserve study to determine your reserve amount.
Overlooking Vendor Contracts
Renewing contracts by inertia does your budget more harm than good. Whether it’s performance or pricing, vendor services can change. Probing contract terms, comparing bids, and assessing quality can result in savings.
Failing to Account for Inflation or Rising Costs
Costs for labor, materials, utilities, and insurance tend to increase. Budgets that assume flat costs risk shortfalls.
Lack of Long-Term HOA Financial Planning
Without a projected one- to three-year financial plan, boards might be forced into special assessments, deferred maintenance, or reserve funding.
The Role of HOA Board Members in Budget Management
While board members don’t need a financial background to effectively budget, it’s important to know what items to review and understand your available resources. An HOA board’s financial responsibilities include:
- Drafting and reviewing the annual budget.
- Connecting with professional advisors.
- Overseeing the collection of fees and the enforcement of payment policies.
- Updating reserves and conducting regular reserve studies.
- Monitoring spending throughout the year and adjusting as needed.
- Communicating clearly and often with homeowners about the association’s financial health.
Alex Turner with Associa says, “Regularly updated reserve studies are crucial. These reserve studies, conducted by professionals, assess the current condition of major components and project future costs.”
Top Tips for Crafting an Annual HOA Budget
An HOA budget is your community’s financial plan for the future. For deeper insight, check out, “Annual Budget Best Practices for HOA Boards.” It offers a guide to effective budget planning and management—proven strategies to strengthen your community’s future.
Frequently Asked Questions about HOA Budgets
How do HOA budgets work?
HOA budgets map out anticipated income and expenses for a fiscal year. Income often comes from homeowner assessments, fees, and sometimes penalties. Expenses include administrative, maintenance, insurance, utilities, and reserve contributions.
Who prepares the HOA budget?
Usually, a combination of the board’s treasurer, a budget or finance committee, and management staff prepares the budget. In many cases, professionals like CPAs or reserve study analysts are also involved.
What does an HOA usually pay for?
Common expenses include landscaping, common area repairs (such as buildings, pools, lighting), utilities, insurance, legal and accounting fees, management fees, fixed obligations like property taxes, and funds for future major projects.