How rising insurance and HOA fees can affect your housing budget

Homeowners insurance and homeowner’s association fees are two charges most homebuyers fail to consider. For too many, those charges can come back to put a severe crimp in their budgets.

If you buy a place in a community overseen by your fellow homeowners, you can’t escape the association dues. You must pay them, whether or not you use the swimming pool, gym and other facilities. And unless you pay cash for the house, you can’t dodge insurance, either. Lenders require it.

Unfortunately, these costs are not only unavoidable, but they’re also rising. According to one report from LendingTree, nearly one in three homeowners pay HOA or condo fees, and of those, nearly 15% pay $500 or more a month. And a study from ICE Mortgage Technology found that insurance premiums leaped 70% in the six-year period between 2019 and 2025.

In both instances, there’s little a homeowner can do about it: Either pay the freight or move to a place with no HOA and cheaper insurance. The only other option is to fall into foreclosure -- and there’s evidence of that increasing, too.

The Federal Reserve Bank of Dallas estimates that premium increases pushed roughly 31,000 mortgages into delinquency in 2022. If things continue as projected, insurance premiums will have risen by an average of nearly 30% by 2055 — potentially leading to an additional 203,000 mortgages per year falling into delinquency by then.

There is no similar data about higher HOA fees leading to delinquencies, but LendingTree found that 82% of HOA members saw their fees rise in the past three years, with 44% calling the increases “significant.” No wonder that 59% of respondents told LendingTree they “actively avoid” neighborhoods with HOAs when house hunting.

Unfortunately for those naysayers, HOA living is becoming more common. Per the National Association of Home Builders, about two-thirds of all new homes built in 2024 came with associations.

There’s nothing inherently wrong with these associations running the show. HOAs help maintain amenities like clubhouses and tennis courts and keep the neighborhood manicured and clean. They also enforce rules about landscaping, renovations and noise, among other things. The rules, and their enforcement, are often seen as necessary evils for the sake of protecting property values, even among the vast majority of residents who have had action taken against them.

Homebuyers must consider HOA costs alongside other recurring charges like utilities, cable/streaming services, cellphone fees, etc. To do otherwise is like shooting yourself in the foot financially.

“When you’re paying $500 or more a month, that’s a really big deal, especially when you consider how tight many Americans’ budgets are,” says Matt Schulz, LendingTree’s chief consumer finance analyst.

Schulz believes many people underestimate HOA costs. Those few hundred bucks a month can make a real impact: “That’s money that can’t go to other financial priorities, such as building an emergency fund, paying down high-interest debt or saving for retirement,” he warns.

Along with factoring HOA fees into their budgets, buyers should also look over the association’s financial records to make sure there are no outstanding special assessments being levied on all owners. And check the minutes of recent membership meetings to determine if future assessments are being considered.

As for insurance, homebuyers and owners have limited ways to respond to rising premiums, which have become “a more substantial component of the monthly mortgage payment,” per the Dallas Fed study.

You can shop for cheaper coverage. You can tie all your policies together with one company. You can raise your deductibles. Or you can relocate to areas of the country where insurance is cheaper.

Of course, relocating isn’t cheap, either — if it’s even what you want to do. Instead, the Fed found that many income-constrained households opt to rely more heavily on credit cards or delay mortgage payments.

Folks with lower credit scores are “much more likely to experience mortgage delinquency following premium increases, while financially secure households are more likely to respond by switching insurers or relocating,” the research discovered.

“Over time, this dynamic may reshape communities, concentrating lower-income households in areas with higher climate risk and rising insurance costs, while more affluent households move away,” the study warned.

Of course, says the Fed study, “the rise in mortgage delinquencies driven by higher insurance premiums has consequences extending beyond individual households to the broader economy.”

Broadly speaking, this research underscores the need for new or revised regulations to address the issue of insurance affordability. But for individual homebuyers and owners, it’s a warning that insurance is just as important a financial consideration as interest rates and other costs associated with homeownership.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com