The world of homeownership can be vast and confusing. It doesn’t have to be a mystery, though — if you do your research. There are many ownership types, each with unique pros and cons. If you’re a new homebuyer, you’re faced with a choice of which type of property you want to purchase and which type of home loan you want to use. Condos, townhomes and co-ops are all most likely on your radar. PUDs offer a particular type of ownership that’s increasingly popular with first-time homebuyers. You may be wondering, what does PUD stand for? PUD stands for Planned Unit Development. What is a PUD? Let’s talk about it.
What is a PUD?
What is a Planned Unit Development? A PUD can be a community of townhomes, single-family residences or a condominium. They have PUD zoning requirements and are very self contained. Consider it like it’s own little town. A PUD property is managed by zoning requirements that were specifically approved for the development instead of a normal zoning code.
PUDs are made up of residential and commercial units, and ownership includes the property and additional common areas, which are owned by either a Homeowner’s Association (HOA) or all invested parties. Planned Unit Developments usually offer amenities that are only available to the homeowners in the development. These amenities are maintained via HOA fees paid monthly or quarterly.
Identifying PUDs
PUD real estate is easy to identify - once you know what you’re looking for. PUD homes share common traits, making them stand out against all the other real estate out there. Some common traits that make up a Planned Unit Development are:
- They’re listed for sale with the identifier, “PUD”. You’ll find condos,single-family homes or townhomes with this tag.These can also be called a planned unit development rider. Please keep in mind that, while most should, not every listing will identify itself as a PUD.
- If purchased, you, the homeowner, would own both the residence and the land it sits on.
- There are common areas and amenities that all homeowners can use that are maintained by the HOA (tennis courts, pools, landscaping, playgrounds, trails, trash disposal, security, etc).
- There is required membership and monthly fees to the HOA for common amenity upkeep.
- There are commercial units in addition to the residences, making it easy to have everything you need within walking distance (retail stores, pharmacies, dentist offices, etc).
- The overall monthly cost of the home is more expensive than other properties due to the required fees to the HOA.
- There are strict rules about how you can use your property such as color scheme, where you’re allowed to park, adding political signs, adding things like basketball hoops above the garage, etc).
What is an HOA?
A Homeowner’s Association is an organization within a development or subdivision that makes rules and guidelines for the community. These rules must be upheld by residents and the HOA will enforce them. If residents do not abide by their rules, they may be fined. The members of the HOA are residents who live in the community and in the case of PUDs, membership is required. The Homeowner’s Association charges monthly fees that they put toward maintaining amenities and facilities. In some instances, they’re also responsible for landscaping and maintaining the curb appeal and security of the homes.
How do Planned Unit Developments and HOAs differ?
The main defining difference between a PUD property and an HOA community is who owns the land. In the case of a PUD home, the homeowner owns the house, land and common areas. In the case of an HOA community, the land and common areas are owned by the association and only the residence is owned by the homebuyer. This means there are usually more restrictions on how residents can use the land and property. Keep in mind, however, that PUDs come with restrictions as well.
Getting a mortgage on a PUD home
While the process for getting a mortgage is similar for most properties, a PUD mortgage comes with its own set of challenges. Working with your lender and a real estate attorney can help streamline the process, and will hopefully result in you owning a new home. When a lender is considering a loan for a PUD, they may consider the HOA’s financial standing. If the HOA isn’t financially stable, the loan may not be approved. When reviewing the HOA, buyers like you should look at:
- How much funds it has for maintenance, repairs, etc.
- If homeowners are overdue on their monthly fees, and if so, how many?
- Any litigation or legal disputes involving the HOA.
- Any budgets, financial statements, insurance policies etc.
The lender will also look at the PUD’s contract, and conditions and restrictions. This is where a real estate attorney will come in handy. You need someone experienced to review the paperwork with you so you know exactly what you’re signing up for and what rules you’re expected to abide by once you sign that contract.
If you, the real estate attorney or the lender discover that the HOA has problems that make you wary of purchasing a home in that community, it’s best to find a different property. Once you purchase PUD housing, you are obligated to be a member of the HOA and to follow their rules. The only way to get out is by selling your home. If you catch the problems early on, before signing the contract, consider yourself lucky and look at other housing options.
Things to consider before putting in an offer on a PUD home
As discussed earlier, the Homeowner’s Association is responsible for maintaining the community’s facilities and amenities.
- By performing regular upkeep, they maintain the property value of the homes within the PUD. The rules of the HOA are put in place to maintain property value.
- If an HOA doesn’t do their job, and the common areas suffer, your property value could drop.
- This is another reason why you should walk away if an HOA isn’t being managed properly upon your or the lender’s review.
- Dropping property values can make your home very difficult to sell. No one wants to move into a community that is being mismanaged. Similarly, if your property is foreclosed on, resale of the home can prove challenging if the common amenities haven’t been maintained.
In the end
At the end of the day, PUDs are just one of the many types of homeownership you can have. While they have a lot of benefits, and it would be great to live within walking distance of a grocery store or pharmacy, if the community is being mismanaged by the HOA, it’s best to find a better community. Living in a PUD comes with its own restrictions and expenses, but it can often be an amazing place to live. Buying a home is a very personal choice, so if you feel that a PUD is right for you, find a lender and a real estate attorney, and get started! If you’ve already found the home you want, start an application for a loan here.
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