Buying a home is as much a financial decision as a desire to own the roof over your head. Proponents of the American Dream question why anyone would keep throwing away their rent check each month if they could buy and built equity. As it turns out, it’s not nearly that simple, for a variety of reasons.

True, buying your home is 35% cheaper on average than renting nationwide, according to a new study by Trulia. However, California has a much smaller margin, ranging from 26% cheaper to buy than rent in Los Angeles to only 17% cheaper in San Jose.

One of the reasons this superficial buy-versus-rent analysis lacks teeth is that it doesn’t include homeowners’ association (HOA) fees potentially paid by those who choose to buy. These HOA fees, which are a nondeductible carrying cost of ownership, can make a big difference. Further, some of the highest average monthly HOA fees in the nation are found in California.

Metro Area How much cheaper is it to own than rent? How much cheaper is it to own than rent including HOA fees? Average monthly HOA fees
Bakersfield 40% 36% $40
Fresno 34% 24% $129
Los Angeles 26% 15% $285
Riverside 34% 16% $315
Sacramento 22% 21% $22
San Diego 28% 15% $296
San Francisco 24% 15% $300
San Jose 17% 8% $290
Stockton 28% 22% $77
Ventura 25% 16% $230

Download the full report at Trulia.com. The study assumes homebuyers have a 3.87% 30-year fixed-rate mortgage (FRM) with a 20% down payment and will live in their home for seven years.

The presence of HOA fees can significantly reduce the financial benefits of home owning. The margin is particularly small in San Jose, meaning if you plan on moving away sooner than the seven years used in Trulia’s formula, it may just make more sense to rent (or find a home to buy that is not in an HOA community).

On the other hand, if you’re in an area where HOA fees are relatively low (like Sacramento or Bakersfield), the added cost may be worth it if you are willing to give up certain freedoms in exchange for your neighbors doing the same. HOA fees often cover maintenance and certain utilities, and they are especially useful if they cover landscaping in these drought-ridden times.

The good news is: lenders are required to consider HOA fees when approving homebuyers under ability-to-repay (ATR) rules. Therefore, homebuyers won’t be over their head when HOA payments are added to their monthly debt obligation. [12 Code of Federal Regulations §1026.43(b)(8)]

The most important thing to do is prepare your homebuyers for the sticker shock of HOA fees. They might leap at a home’s list price without fully comprehending the added strain of future HOA payments. Like a rental payment, HOAs fees are never returned and epitomize sunk costs. Crunch the numbers to figure out if the services the fees cover are worth the cost.

If your buyer is interested in purchasing a property in an HOA community, review the HOA documentation (operating rules, conditions, covenants and restrictions (CC&Rs)) with them as soon as possible prior to submitting an offer. Further, if you’re representing a seller in an HOA community, request details on HOA fees and services early so they can be included in marketing materials for potential buyers. This saves time by helping to weed out potential buyers who are unable or unwilling to pay high HOA fees. [See first tuesday Form 135]