Association funds are the lifeblood of any HOA. They are used to help maintain and run the community. Managing the finances of an HOA can seem complicated, but if the association understands the different types of funds and what they should be used for, allocating the funds goes much smoother.
HOA dues are paid by the homeowners within the community. This money is how the neighborhood pays for necessary maintenance, services and repairs. The HOA board is in charge of the financial responsibilities, and they handle them much like you might handle your personal finances. Most people have a checking account they use for routine expenses, such as the mortgage and monthly bills. However, they also have a savings account, which they can tap into when they suddenly need a new roof or other surprise big expense. Similarly, HOA funds are allotted into operating funds and reserve funds.
The operating funds are like your checking account. They help pay for the everyday functions of the HOA, which may include contracted services, insurance, taxes, utility expenses, office expenses, accounting fees and legal fees. Basically, everything the HOA needs to pay for on a regular schedule should be paid for with the operating funds.
The reserve funds are like the HOA’s savings account, and they pay for things that don’t happen on a consistent basis. They are typically used for major repairs or renovations, such as roof replacement on a common area, new playground equipment, painting of community common areas, etc. There are typically a lot of rules and regulations regarding how reserve funds can be used, so it’s important to check the governing documents if you are unsure. These restrictions help prevent the reserve fund from being abused.
Even with the reserve fund, there may be times when the HOA just doesn’t have enough money to pay for a major project. During these times, the association will levy special assessments, which are basically additional dues the homeowners pay to help fund the project.
Association funds help keep the community going, but only if they are used correctly. Operating funds help manage the day-to-day expenses while reserve funds look at the bigger picture.