Posted 11/14/2017

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Should I buy in a gated community?

gated communities

Peter Miller

The Mortgage Reports Contributor

Does a gated community offer any special value?

If you want safety and security, the gated community is an attractive choice. With us since ancient times in the form of walled cities and guarded castles, gated communities today provide security, status, and exclusivity.

At least 10 million people across the country live behind high walls. And, apparently, these walls add some value. Research published in 2016 from the American Real Estate Society (ARES) found that, on average, homes in gated communities fetched an additional $30,000.

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The study compared 11 gated communities in Tennessee to ungated neighborhoods. Researchers attributed the gated homes' higher prices to “actual or perceived benefits associated with additional privacy, homeowner associations' tighter controls on maintenance, home design and the added assurances against crime and other undesirable activities.”

Verify your new rate (Nov 19th, 2017)

Why buy (or not) in a gated community?

So what makes gated communities attractive to so many homebuyers? There are several possible reasons. However, these reasons may not be appealing to you. Ask yourself a few questions before purchasing.

Are gated communities more secure?

US Senator Rand Paul (R-KY) recently got into a fight and wound up with six broken ribs. However, his attacker was not a burglar casing the joint. Nor was he a deranged constituent looking for trouble.  He was just an angry neighbor. Both combatants live in the gated Kentucky community of Rivergreen.

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When access to your property is controlled and monitored, you can deter a lot of undesirables. But how much security is really in place? If a back entrance is undefended, the real value of gates and barriers is limited.

Are gated communities new?

Not really. Think about the traditional downtown apartment building with a doorman. The doorman is surely a gatekeeper. In wealthy private homes, a (large) butler is often the gatekeeper. Remember Lurch in the fictional Addams Family?

On farms, estates, and rural homes, a formal gatehouse is rare. When in place, gatehouses alert residents when someone enters the property.

Today, it is increasingly common to install hidden electronic monitors. Dogs serve much the same purpose. Canines in the homes of the rich and famous sometimes cost tens of thousands of dollars apiece. That said, un-pedigreed dogs can be at least as good guards as their expensive counterparts.

Are gated communities considered upscale?

Gated communities often surround golf courses. If you like golf, great. If not, understand that this amenity comes with large monthly maintenance costs.  The HOAs in these communities may set minimum home sizes, and these may be large. Understandably, larger homes generally come with higher ownership costs.

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Are property values higher in gated communities?

In 2016, the ARES study of 11 Tennessee properties concluded that this is true. However, there are at least 30,000 gated communities in the US. No doubt some have more re-sale value than others, and some have less. As with all real estate, you have to look at specific properties.

Do gated communities have architectural committees like HOAs and condo associations?

Many buyers find the uniformity of gated communities a big attraction. To serve this market, many gated communities impose strict architectural guidelines on homebuilders. If you have unusual taste is housing (chartreuse siding, anyone?), you may want to pass. If uniformity bores you, these neighborhoods will likely not appeal.

Carefully review the rules, bylaws, declarations, budgets, and related paperwork with a broker or attorney to prevent surprises.

Gated communities and mortgages

Can you finance a home in a gated community?

Loan programs for most residences also work for planned communities. Lenders may add special requirements for "PUDs," or "planned unit developments," but this is unusual.

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For example, Freddie Mac’s mortgage guidelines don't use the term “gated community” at all. They only refer to the homeowners association, or HOA.

Residents of gated communities often pay for guards at the front gate, day and night. In some communities, all residents must buy mandatory golf or social memberships. Even if they don't play golf, and they hate people. In other words, gated communities may bill you for things that don't directly benefit you.

Mortgage calculator shows how HOA and other fees impact what you pay

In addition, more expensive houses generally mean more expensive mortgages. You may need a jumbo mortgage to purchase a home in a gated community because of higher acquisition prices.

You can see how these added charges impact what you can afford. Supposed that you earn $100,000 a year and have  no debts. If your credit is solid,  you can afford a $481,578 mortgage at a 4 percent rate. However, adding $350 a month in HOA fees reduces what you can borrow by nearly $60,000.

What are today's mortgage rates?

In recent weeks, current mortgage rates have moved within a narrow range. Home loans are still highly-affordable. However, the real estate market is heating up. Whatever your chosen neighborhood, it's likely to get more expensive in the near future.

Verify your new rate (Nov 19th, 2017)

Peter Miller

The Mortgage Reports Contributor

Peter G. Miller, author of The Common Sense Mortgage, is a real estate writer syndicated in more than 125 newspapers nationwide. Peter has been featured on Oprah, the Today Show, Money Magazine, CNN and more. Follow Peter on Twitter

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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