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Condo vs. PUD

By: Eric McLaughlin
March 24, 2011

Many first time buyers are taking advantage of the incredibly low prices in the condominium and Planned Unit Development (PUD - think “town home”) market. They are lured by their prices, which are in the $80,000- 180,000 price range. It seems these property types have been impacted the most by the burst of the housing bubble. However, there are factors every buyer and seller needs to know.

First of all, a condo unit consists of the airspace within the inner walls and has a percentage interest in all of the land within the complex. For instance, if there are 100 units in total, then the unit owner would have a 1/100th interest in the land; whereas, a PUD unit actually owns its own lot and a percentage of all of the commonly owned land in the complex. Typically, a PUD would have a small back yard or patio area that is most often fenced in.

Why is this little difference so important? There is a major difference in the ability to obtain mortgage financing.

The lender will treat the PUD under the rules of a single-family home, which provides for far less restrictions than financing a condo. A condominium must have at least 50 percent of the total units as owner occupied, which means less than 1/2 can be rentals or vacant. The condo project must also have less than 15 percent of the homeowners more than a month late on their dues to the association.

These days, many condo projects cannot pass these basic guidelines and therefore are ineligible for a traditional mortgage. Even if you pay cash for the condo, you must consider the resale prospects if a buyer will not be able to obtain a mortgage to buy it from you. Of course, the associations’ numbers can get better over time, but you would not want to bank on it (pun intended).

So, many buyers are choosing to put in offers on Planned Unit Developments rather than Condos. Not only are they easier to finance, but also, many times the “town home” style appeals more to the buyer.

A town home usually consists of an upstairs and downstairs contained within the unit. This provides for less noise nuisances than a condo, which usually has a neighbor either above or below your unit. Also, the private back yard of a PUD makes the unit feel more like a single-family home than a condo with only a balcony.

Eric McLaughlin is the Founder/Owner of Allstate Mortgage Company, based in Santa Rosa for over 25 years. He can be reached at 521-3434 x22.