A planned unit development, also known as a PUD, refers to a community of single-family homes, and sometimes condos or townhomes, where every homeowner belongs to a homeowners association (HOA). Knowing what a PUD is and how it operates is crucial when buying a home, as it can have an impact on your mortgage qualification process and your overall experience living in the home.
Key Features of PUDs
Real estate developers design PUDs to create attractive and unified living spaces. These developments often consist of a mix of housing options at different price points, conveniently located near workplaces, shopping centers, schools, and recreational facilities.
In a PUD, you can find a variety of housing types, such as townhomes, single-family homes, and even senior living accommodations. The community may also include amenities like grocery stores, restaurants, daycares, office spaces, religious institutions, and light industrial buildings such as warehouses and storage facilities.
Identifying PUDs in Real Estate Listings
One way to identify whether a home listed for sale is part of a planned unit development is by examining its appearance. If the property looks like a single-family home or townhome but is listed as a “condo” in the property type, it may be a clue that it is part of a PUD, according to Redfin, a real estate listing site.
Another telltale sign of a PUD is the existence of HOA fees. However, it’s important to note that a property can have HOA fees without being part of a PUD.
Planned Unit Developments and Homeowners Associations
From a lender’s perspective, the following characteristics define a PUD:
- Homeowners own both the structure (residence) and the land (lot).
- An HOA owns and maintains common amenities accessible to all homeowners.
- Homeowners’ membership in the HOA is mandatory.
- Homeowners must pay dues and assessments levied by the association to maintain the common amenities.
Common amenities in a PUD can include swimming pools, tennis courts, parks, playgrounds, landscaping, and security services. These amenities are exclusive to community members and their guests.
Owning a property in a PUD can be more expensive due to the associated HOA fees. These fees can impact your affordability when purchasing a home, so it’s crucial to consider whether you will utilize the amenities enough to justify the additional cost or if you genuinely appreciate the community.
In addition to regular HOA fees for amenities, there are often rules governing the use and modification of your property. Some restrictions could include limitations on using your home for short-term rentals, adhering to specific color schemes, restrictions on parking cars overnight on the street, or displaying political signs in your yard. Remember, these restrictions can apply to any HOA, not just those in PUDs.
PUD Finances and Rules
Obtaining a mortgage for a home in a PUD is typically only slightly more challenging than getting one for a non-PUD property, as long as the HOA is financially stable. Both you and your lender will want to review the HOA’s finances and the PUD’s covenants, conditions, and restrictions (CC&Rs). It may be beneficial to consult a real estate attorney to ensure a thorough understanding of these documents, including the rules you’ll be agreeing to and the financial health of the homeowners’ association.
Key aspects to consider regarding an HOA’s finances include the reserves available for major repairs or maintenance, the percentage of delinquent homeowners, and any ongoing litigation involving the HOA.
If you or your lender have concerns about the management of the community after reviewing the paperwork, it is essential to address these issues upfront. Remember that once you purchase the property, you become a part of the HOA, and the only way to leave is to sell the home.
Why Lenders Care About PUDs
Lenders pay close attention to the condition of a PUD’s HOA because, in the event of foreclosure due to mortgage default, they become the property owner. Reselling the property becomes more difficult if the HOA is poorly managed or the common amenities have been neglected. As a homeowner, you should also consider the potential impact on your ability to sell your home in the future and the overall quality of your living experience.
Your real estate agent can assist you in obtaining the information that lenders typically review, including covenants, conditions, and restrictions, as well as budgets, financial statements, reserve studies, and insurance policies for common amenities. Even if you are a financially sound loan applicant, an appraisal and home inspection may reveal no issues, but problematic HOA management can hinder your ability to secure a mortgage for a PUD property.
Bottom Line
Planned unit developments offer pleasant living environments, but they come with two significant considerations. Firstly, you will need to pay HOA dues for as long as you own the property. Secondly, you’ll be subject to restrictions on how you can use and modify your property. However, these rules also apply to your neighbors, which helps maintain the community’s condition and preserves property values when the HOA is well-managed and financially stable.
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