HOA and Mello-Roos, and why your monthly cost is higher than you think
Two line items that never appear in an advertised price and routinely add five hundred dollars a month to a new Southern California home.
If you are comparing a new home against a resale, the purchase prices are not comparable until you have added two things that apply overwhelmingly to new construction: HOA dues and Mello-Roos.
What Mello-Roos actually is
It is a special tax district, created under California's Mello-Roos Community Facilities Act, used to fund the infrastructure a new community needs: roads, schools, parks, water and sewer connections. Rather than the developer carrying that cost and pricing it into the house, the district issues bonds and the homeowners repay them through an assessment on the property tax bill.
Practical consequences:
- It is on top of your ordinary property tax, not part of it. - It is commonly $150 to $500 a month, and on some communities considerably more. - It usually runs for a fixed term, often 20 to 40 years from formation, and the term does not restart when the house changes hands. - It does not apply everywhere. Older neighborhoods and some newer ones have none at all.
Because it appears on the tax bill rather than the price list, it is easy to miss until escrow. You can ask for the exact annual amount and the remaining term for any specific address, and you should, before you tour.
What HOA dues buy
HOA dues cover common landscaping, shared amenities, and — for townhomes and condos — usually the exterior and the roof. Typical detached-home dues in a Southern California new community run $150 to $450 a month; attached homes run higher because the association is maintaining more of the building.
The dues are not automatically a bad deal. On a townhome where the HOA is responsible for the roof, you have effectively pre-paid a roof replacement you would otherwise face alone. On a detached home where the dues buy a pool you will not use, the same money is simply gone.
What to read before you sign:
- The current dues, and the history of increases over the last five years - The reserve study, which says whether the association can afford what it is going to have to replace - Any special assessment already voted or pending - What the association is actually responsible for maintaining
Putting it together
A worked example, using round numbers. Two homes, both listed at $1.1 million.
The first is a new home with $280 a month of Mello-Roos and $220 of HOA. The second is a ten-year-old home with neither. Same price, same mortgage, same insurance — and a $500 a month difference in what leaves your account, which is $6,000 a year and roughly $180,000 across a thirty-year hold.
That does not make the new home the wrong choice. Everything in it is new, the running costs are lower, and nothing needs replacing for a decade. But it is the wrong choice to make without knowing the number.
Ask for the all-in monthly figure on the specific lot, in writing. If it is not offered readily, that is itself informative.