Despite what many people say, Community Development District (CDD) fees aren’t some of the hidden costs of home ownership. Although a seller may fail to mention all the fees associated with a piece of property, the homebuyer can find out whether or not he needs to pay CDD fees by asking the seller or reading the closing documents.
One major problem is that many people are unaware of the fact that some communities in Florida have CDD fees. Even though these fees became prevalent more than 10 years ago, which means that many Florida homes are currently carrying such fees, very few home buyers understand all the implications. Now, please join us as we clarify the ambiguities regarding CDD fees and explain why homeowners need to pay them.
CDD Fees: What They Are and How They Work
These types of fees are typically used to cover the massive cost of building roads, bridges, utility lines, street lights and other infrastructure elements as well as various amenities (e.g. clubhouses, tennis courts, golf courses, pools, playgrounds, etc.) designed to serve a planned development.
Since counties don’t finance infrastructure elements and developers rarely have cash on hand to pay for these improvements, CDDs allow developers to borrow money in the form of tax-exempt municipal bonds in order to finance public projects. Therefore, these bonds are basically loans that must be paid back at maturity, just as any other type of loan.
Under Florida law, developers can collect CDD fees from homeowners in order to repay municipal bonds. The amount a first-time homebuyer needs to pay depends on different factors, including the total cost of the public project, the number of residents living in the area and the repayment period. In general, these fees are paid over time periods of 10 to 30 years and appear as a special assessment on the tax bill, being collected by the county tax collector. If a homeowner sells his property before the bonds are paid off, the new owner becomes responsible for paying the remaining balance after the date of the sale.
The Advantages and Disadvantages of CDD Fees
CDD fees should not be confused with HOA fees. While HOA fees cover the cost of maintaining common areas and assets along with insurance, security services and the like, CDD fees are meant to offset the cost of building different infrastructure elements, as mentioned above. But these fees can sometimes involve more than just the repayment of municipal bonds. That’s because they can also be used to cover the cost of managing water/sewer systems, conservation areas, and other items associated with a planned development. Depending on where a person lives, he might need to pay both fees or just one of them.
One more essential aspect is that CDD fees can increase. For instance, the developer can get additional municipal bonds to build a new school, pool, etc., based on the requirements of the community. As well, the cost of maintaining different areas of a development can increase according to price fluctuations, new amenities added, etc.
Although these fees are typically seen as a major disadvantage, they also offer some undeniable benefits. The most notable one is that a homebuyer can purchase a home in an aesthetically appealing community that provides a wide variety of recreational and functional amenities within walking distances, while paying a comparable price to that of a home built in a less attractive area.
On a side note, what many people don’t realize is that the cost of infrastructure is almost always passed on to the homeowner, either in the form of a higher house price or in the form of CDD fees. While a higher price on a piece or property requires a homebuyer to borrow more money – some applicants may not even qualify for the amount of mortgage they need to buy a home in a well-developed neighborhood – paying fees over a period of 10, 20 or 30 years gives more people the opportunity to purchase their dream homes in newer planned communities.
If you’re thinking about buying new construction, North Florida Mortgage can help you out. Our expert mortgage brokers can work with you to help you better understand your financial situation, identify the financing options available to you and choose a flexible mortgage alternative. To get in touch with one of our mortgage specialists who can smooth the entire home loan process, from the application to the closing, call our friendly advisors today at (904)-389-4635.
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