PUD vs Condo: Discover the Difference

Q:

What is the difference between a PUD and a condo?

A:

A planned unit development (PUD) is often confused with a condominium (condo) because you usually cannot determine the difference just by appearance. Additionally, they both have a homeowner’s associated (HOA) fee that must be paid by residents in the community. Let’s take a look at what the difference is between a PUD vs a condo.

What is a PUD?

A PUD consists of a community of homes that are either attached or detached properties. In a PUD, the owner of the property owns the land the house sits on, similar to a single-family home. Additionally, a homeowner’s association association (HOA) typically owns the common areas of the community. These areas might include things like a park, pool, clubhouse, playground, or recreational area. The property owners pay a mandatory HOA fee (commonly monthly or annually) for the upkeep of the common areas and other potential costs.

The PUD fees vary based on the particular community and the amenities that are provided for homeowners. Your lender will include the PUD fee as a liability when you qualify for a mortgage. You should consider if paying this fee is worth the amenities supplied.

What is a Condo?

A condo can come in a variety styles. It may be attached or detached. It also can an enormous high-rise or a single-story structure. The interior of the condo (airspace) is owned by the condo owner. The owner holds title to the unit. However, the exterior of the structure and common areas are owned by all the unit owners in the condo project. The land that the condo sits on is owned jointly with the other condo owners.

Condo owners pay a mandatory HOA fee that commonly covers the maintenance of the exterior of the property (lawn cutting, snow shoveling, etc.), upkeep of the common areas, exterior insurance, trash, and other city service. The unit owner pays property tax on the unit and is able to sell the unit just like a typical single-family residence or PUD.

Similar to the PUD fee, your lender will use the HOA fee for loan qualification purposes. HOA fees can vary greatly from project to project. You will want to fully understand the HOA fee and what it covers before you purchase a condo.

Additionally, condos can contain many rules for living in the community. For example, the condo may not allow large dogs or require your front door to be painted a certain. You will want to review all the rules and regulations associated with the condo before buying. The last place you probably want is to live is in a community that is not consistent with your normal living habits. Note that rules and restrictions can apply to PUDs too.

Financing a PUD vs Condo

Generally, it is much easier to obtain a mortgage on a PUD than a condo. A condo is subject to a greater number stringent approval requirements in comparison to a PUD.  This is particularly true if the lender sells their loans to Fannie Mae or Freddie Mac. Condo projects commonly must be approved through a review of a condo questionnaire and the condo documentation (by-laws, master insurance policy, current budget, etc.). PUD properties typically must meet only a limited number of criteria in order for the property to be eligible for a mortgage.

How to Determine a PUD vs Condo

You should not rely on the appearance of a property to determine if it is a PUD or condo. A way that is used to determine the property type is by reviewing the CC&Rs and a subdivision/condo project map. The below video gives you an idea of how a PUD vs a condo is determined. You may have access to the documents referenced in the video on your local governments website. Otherwise, a real estate professional should be able to assist you in determining if a property is a PUD or condo.

Note that just because a property pays a mandatory fee does not necessarily mean that it is a PUD or condo. My subdivision is required to pay an annual fee for common grounds maintenance. However, the subdivision is not classified as a PUD or condo.