How Do PUD Mortgages Differ From Single-Family Home Mortgages?
When you’re shopping for a home, you’ll encounter many property types along the way, and even the standard property types like single-family homes, condos, and planned unit developments (PUDs) have small but important differences. To most home shoppers, a PUD will appear like a single-family home. For example, it could be a detached house with a yard, a garage and everything else you’re looking for in a single-family home. But even though it lives like a single-family home, the legal structure for a PUD is more similar to that of a condo.
Let’s take a closer look at PUDs, including how these property types can impact the mortgage process.
What Is A PUD?
PUDs are communities of homes, which can include single-family homes, condos, commercial property like retail stores or all of these property types. The most common kind of PUDs, however, are comprised predominantly of single-family homes. Like a condo project, a PUD will be operated by a homeowners association (HOA) to which every homeowner contributes monthly or quarterly fees based on their percentage ownership in the overall project. And also like a condo project, those HOA fees go toward covering amenities and maintaining services associated with that PUD.
Amenities can include parks, playgrounds, pools, tennis and basketball courts, hiking trails,private gated common land and street lights. Services can include street cleaning, landscaping and security.
All of these amenities and services are for the exclusive private use of homeowners within that PUD.
Like condos, PUDs are also governed by a set of rules and restrictions specific to each community. There isn’t a specific set of rules that governs all PUDs, so if you’re buying a home in a PUD, you need to review all of the HOA documents that are part of that PUD, including:
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Budget
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Bylaws
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Covenants, Conditions and Restrictions (sometimes called CC&Rs or declarations)
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Articles of incorporation
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Anything else related to PUD noted on title report
Reviewing the budget will help you understand the full cost structure of the PUD, and determine how much shared community maintenance will need to be kept up over the years. This will help you make decisions on whether a PUD is right for you and your budget. For example, maybe you’re looking at a detached home in a PUD, and find the dues to be expensive for amenities you don’t intend to use.
Or maybe you can find a single-family home that’s not a PUD, yet offers similar public amenities nearby such as pools, parks or playgrounds.
In these cases, you might choose to forego the PUD’s HOA dues and just buy a single-family home.
On the other hand, you may opt for buying a home in a PUD because a PUD’s HOA dues offer perks like yard maintenance and extra security to keep your kids safe when they’re out in the neighborhood with their friends.
As for the bylaws and CC&Rs, those documents tell owners what they can and can’t do. They might restrict pets, the ability to run businesses of a certain size out of your home, or the number of cars you can park on the street. They may even get as specific as stating that if your car leaked oil on your own driveway, the HOA could fine you.
Again, you’ll need to read all these documents to determine whether that specific PUD is right for you. And remember, all PUDs are different, so each one will have its own set of rules and restrictions.
How Do PUD Mortgages Differ From Single-Family Home Mortgages?
When it comes to getting a mortgage on a property that’s in a PUD, you will definitely need to make sure your mortgage lender is aware your property is in a PUD.
If you’re getting serious enough to write an offer on a property that’s in a PUD, your realtor will probably have told you that it’s in a PUD. But in case they don’t, you can often tell a property is in a PUD – even if it seems like a single-family home — because it has HOA dues.
Your lender will need to collect the above PUD HOA documents for review and approval. They will underwrite and approve a PUD just like a condo.
They’ll need to make sure the budget is healthy, with no serious delinquencies on dues from homeowners; a consistent contribution of each year’s income going toward HOA reserves; a reserve account that’s separate from the budget; and verification that the PUD is predominantly residential rather than commercial.
You don’t have to verify all of this for your lender, but you can help your lender by ensuring they know the property is in a PUD early in the loan process so they can manage the loan approval accordingly.
A PUD loan is more complex than a single-family home loan because, like a condo, the legal structure and financials of the PUD need to be approved. This shouldn’t take extra time, as long as your lender knows in advance.