Shopping for a home means hearing many different terms when it comes to the property type. You might hear things like single-family home, multi-unit, and PUD. Single-family homes and multi-units are easy to figure out, but what exactly is a PUD? It stands for Planned Unit Development and it could look like many different things, including a single-family home. PUDS are homes within a community that can be comprised of any of the following:
- Single family homes
- Commercial properties
The difference between PUDs and non-PUDs when it comes to single-family homes is the presence of a homeowner’s association. Just like you would see with a condo, there is a management company that sets rules and oversees the community. Homeowners in the PUD must pay an association fee either on a monthly, quarterly, or annual basis. The association fees that you pay go towards the regular maintenance in the common areas as well as any special projects that the management deems necessary for the area. A few examples of the areas that might be improved include:
- Tennis courts
- Basketball courts
Of course, every PUD will have its own common areas that the association fees cover, which will be documented in the closing documents when you purchase the home.
What are the Rules?
The main difference with PUDs as opposed to single family homes not in a PUD is the rules that homeowners must abide by. Even though you live in a single family home with your own yard and garage, you will still have to listen to the rules set forth by the association. Every association will be different too. For example, one association might not allow above ground pools while another one down the street is perfectly fine with it. Another example is in regards to the type of fencing your association allows; some only allow wooden fences while others are okay with chain link fences and some even restrict the height of the fence you can install.
Before you purchase a home located within a PUD, you should consider the rules and bylaws that govern the home. You should look at things like:
- The written rules
- The intended or set budget
- The restrictions (fence size, pools, etc.)
- Articles of incorporation
Looking at these documents ahead of time will help you understand what you are getting into. Do not fall into the trap of thinking that because you are purchasing a single family property that you are free to do whatever you want – the association has the final say, which could mean that you cannot make changes you desire to make.
How Does a PUD Affect a Mortgage?
PUDs have an impact on your mortgage that standard single family homes do not have, so you must be upfront with your lender if you are purchasing a PUD. If you do not tell your lender, he will find out with the appraisal, so the sooner you let him know, the sooner he can start working on the necessary documents to ensure that your mortgage gets approved.
Just like if you were to purchase a condo, the lender would need to evaluate the following:
- The association’s budget
- Any meetings from the association meetings
- The bylaws
- Any legal actions that were taken against the association
The lender will need to determine that the association is in good standing and they are not in any type of financial trouble as a result of homeowners not paying their dues or any outstanding legal issues they have against them.
What are your Options?
If you are not the type of person to be able to deal with restrictions on your own home, you can look for other homes in the area that are not governed by an association. You can look for homes that are located near the amenities you want, but maybe not located directly within the subdivision. There are plenty of areas that are not ruled by an association and plenty that are; it really depends on what you prefer in regards to how free you can be with changes to the exterior of your home.
PUDs are not a bad thing and really can help to keep all homes looking proper and without any dangerous issues. If you purchase a PUD, just be prepared to have to go through a little more when getting the mortgage approved as well as any changes that you want to make to the outside of the home. In the end, the value of your home will likely benefit as you will not have crazy changes going on at the homes around you that can ruin the value the surrounding homes, including your own.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.