“This neighborhood looks just like its own little town, right in the middle of the city!”
You’ve probably spotted cute subdivisions you’d describe this way during your recent search for your new home. There’s a name for them: planned unit developments (PUDs).
A PUD is a community of single family homes, townhomes, or condominiums, with common property owned and maintained by a homeowners association (HOA) for the sole use of homeowners. Think of PUDs like apartment complexes, but instead of renting, residents own their homes and the lots on which they sit.
PUDs can include both residential and commercial units and amenities open only to homeowners within them may include tennis courts, pools, playgrounds, or even a gated entrance to the neighborhood. Even the streets in the PUD neighborhood may be owned and maintained by the PUD, instead of tax dollars from the local community.
Here are four things to know about PUDs in real estate.
PUDs Are Closely Tied to a Homeowners Association
Homeowners associations (HOAs) can take many forms, but generally they provide amenities to members of the association for a monthly or quarterly fee. These amenities can include small perks like maintaining a small park, or large ones like a community swimming pool or full lawn maintenance. Some HOAs are optional, others are mandatory.
In the case of a PUD, HOA fees are mandatory, as they ensure the PUD community can afford to run and maintain the amenities it promises its members. Fees may also include money for future upgrades. All PUDs have HOAs, but not all HOAs are part of a PUD.
For example, you may live in a neighborhood with community pools nearby and streets maintained by the city. But, your HOA fees contribute to new swings at the neighborhood park, or for someone to mow your lawn. In this case, the single family home or townhome belongs to an HOA, but not a PUD.
It Differs from a Condo
While a PUD may sound a lot like a condo because certain amenities are offered to its residents, there are some key differences. Many think of a condo as just a small apartment-like unit that shares walls with a neighbor. However, condo townhomes are also very common — and the key difference between these and townhomes within a PUD is who owns the land on which the property sits. In the case of a condo townhome, the condo association owns the land. In the case of a PUD, the homeowner owns the land.
While the condo townhome owner is free to enjoy the front and back yards if they have them, the association governs what can and cannot be put there. For example, you may need to get permission if you’d like to install a pond or swimming pool and the association could revoke that permission at any time. While a condo townhome may have greenspace owners are free to use, it is ultimately owned by the HOA.
On the other hand, both the townhome in a PUD and the land on which it sits is owned by the homeowner. Many include a front and back yard and the owner is free to do with it as they wish, for the most part.
Like most condos, HOA fees in a PUD are mandatory. But, other items covered in these fees may include non-through streets owned by the PUD (instead of the city), landscaping enjoyed by residents, private security, or even a guest house available for rent by family or friends of homeowners in the PUD.
It Can Come With Rules
Like condos and HOAs, PUDs may come with specific rules to maintain a certain standard in the neighborhood. This could include guidelines about approved colors to paint the exterior of your home, where you can park, if pets are allowed, and if you can run a business out of your home.
While you do still own the title to a home within a PUD, you lose some of your freedom to use your property any way you choose. If you march to the beat of your own drum, you might want to reconsider buying a home within a PUD. Rules are meant to enforce uniformity and homes within a PUD won’t have the character you’re looking for.
PUDs Matter to your Mortgage
While a PUD loan is a bit more complicated than a traditional mortgage, you shouldn’t expect approval of it to delay your closing. Just be sure to let your lender knows in advance that the home you are purchasing is part of a PUD. They’ll need to collect and review some extra documents — this may include making sure there are no serious delinquencies on dues from homeowners, an adequate amount in the HOA reserves account, and verification that most of the PUD is residential, instead of commercial.
As with all mortgages, your lender wants to ensure their investment carries as little risk as possible and they could recoup their money if you are unable to repay your mortgage. If the PUD in which the property exists isn’t sound financially, this could signal that home values in the area could drop in the future and the bank may not approve your loan for the full amount.
An Agent Can Help
If you think living in a PUD may be perfect for your situation, make sure you enlist the help of a local, trusted real estate agent. They can help you find out exactly how much the HOA fees will cost, work with your lender to approve your mortgage, and find the home that best fits your needs.
Besides helping you uncover additional cost-savings opportunities, Clever Partner Agents also offer on-demand showings — sometimes in less than an hour — so you know you won’t miss out on your dream home in your dream neighborhood. Plus, you’re eligible for a $1,000 buyer’s rebate on any home you purchase for more than $150,000 (in 40 states).