Many people have difficulty distinguishing between PUD vs. condominium. While they are similar, the main difference has to do with the ownership structure.
- PUD ownership includes the home, lot, and common areas
- Condominium ownership includes just the unit
For condominium owners, the HOA (Homeowners Association) owns the land and common areas.
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What Does PUD Stand for in Real Estate?
PUD in real estate is an acronym for Planned Unit Development. As the name implies, the entire community has a central plan. This includes the layout of streets, amenities, building design, and almost anything else that you can think of. It often includes not just houses, but offices, shopping, recreational facilities, and even churches.
What is a PUD Home?
A PUD home is a part of a planned community, and all residents must join the HOA. Rocket Mortgage has a nice guide offering a good list of pros and cons. On the plus side,
- Amenities are often more private and less crowded
- Since you own the land, you have freer use of your property than a condominium
- Because of the central plan, most amenities are close and convenient
- The HOA may be able to negotiate reduced costs for many things, even maintenance and utilities
On the other hand, there are negatives you should think about.
- All the benefits come at a cost, namely HOA fees
- Restrictive covenants can severely limit what you are able to do with your own property
- Houses are often very close together
- They are often more difficult to sell than a single-family home
If you like the idea of living in a small community with lots of amenities and everything is planned, including the aesthetics, then it might be for you. If you want a more eclectic neighborhood, or you do not want to be right on top of your neighbor, then you may want to look for a less Orwellian neighborhood.
PUD vs. condominium differences are stark when considering zoning. PUD zoning may also be called cluster zoning. Local governments grant this special type of zoning on a case-by-case basis, because it does not adhere to existing ordinances. The laws on land use in most areas are rigid, and Many considerations go into these laws, including traffic flow, aesthetics, noise, pollution, etc. Basically, they mitigate problems that come from haphazard development.
What if there was an overall plan for the community that considered all those potential problems? Then, the government may be more willing to relax certain ordinances. That is where cluster zoning comes in. A developer presents an overall plan for the community. This plan lays out the street patterns, the businesses, schools, shopping, residential units, and recreational areas.
Often the developer provides extra amenities, such as green spaces, so they can use smaller lots than existing zoning allows for houses. They may put shopping closer to where people live to make it more convenient, and they can do this because the fixed plan guarantees minimal traffic congestion.
The local governments like these because it uses the land more efficiently, and developers like it because it gives them more flexibility in how they build. It often allows developers to put more units in the same size area and increase their revenue. For homeowners, the property is zoned like a single-family home. They must, however, join the HOA, which manages the common areas.
A PUD mortgage is very similar to a single-family mortgage. This makes sense because that is how it is zoned. Forbes points out there are, however, two major additional hoops you need to jump through to get a loan. Your lender:
- Examines the HOA to make sure it is economically viable
- Considers the monthly HOA fee when it determines how much it will lend
The first is important because if the HOA does not keep up with the infrastructure properly, then home values fall in the community. Therefore, if the bank must foreclose, it will not be able to recoup its investment. The second impacts how much you can afford per month to pay on your loan. The bank will not approve you for as high a loan as you would get if you bought a single-family home.
A PUD rider to a mortgage contract allows the HOA to notify the lender if the homeowner defaults on their contractual fees. It further allows the association to shift the responsibility from the homeowner to the bank if they need to. Reverence.com answers several important questions about these riders.
Why would the HOA insist on this rider? Because it streamlines the collections process. They cannot allow themselves to miss payments to contractors and let the community’s infrastructure suffer. That would quickly undermine the value of all the other properties in the community.
Why would banks agree to this rider? It is an early red flag that the borrower has a financial problem. Also, they have the same interest as the HOA in providing adequate funds
Condominium in Real Estate
A condominium in real estate is a unit inside a larger building. You own the unit, and someone else owns the building. Therefore, you maintain the interior of your unit, and the HOA maintains the building’s exterior, and the common areas.
A condominium is a fee simple ownership, but it differs from a single-family in that you only own the interior of the property. The building itself is either owned in common or by someone else. This means that you have the right to change the interior of your unit but not the exterior.
Is a Condominium Unit Real Property?
A condominium unit is real property. You do own it, and you can make changes to it if it does not impact other units or the exterior walls. Your ownership ends at the inside of your walls. You may not alter anything that looks out to a common area.
Is PUD the Same as a Townhome?
When considering the difference between a PUD vs. condominium townhouses enter the discussion. A PUD is not necessarily the same as a townhome. What that means is that a planned development may contain a townhouse, but not all townhomes are PUDs. The planned development is large and contains many types of properties. It may contain a townhome but not exclusively. Townhouses may also be a condominium ownership and a development of just condos.
Final Thoughts on PUD VS. Condominium
PUD vs. condominium: they are very different real estate terms. A PUD is a very large development that may include businesses, single-family homes, large recreation areas, and even houses of worship. Owners of residential properties own the home, lot, and even have a share of the common areas. Condominium ownership only includes the inside of the single unit of the building.