A planned unit development (PUD) is a development in which individual homeowners own their unit and the land beneath it, while a mandatory homeowners association owns and maintains common areas. This distinguishes PUDs from condominiums, where unit owners typically own only the airspace inside their unit and hold a shared interest in the land. The PUD vs. condo classification has significant implications for how a loan is approved.
How PUDs Differ From Condominiums
In a condominium, the owner owns the interior airspace and holds an undivided interest in common elements including the land. In a PUD, the owner holds title to the lot and all improvements on it, just like an SFR, but is subject to mandatory HOA membership and assessments for shared amenities. This means PUD owners have real property rights similar to SFR owners, which significantly simplifies the financing process.
Fannie Mae PUD Review Requirements
Fannie Mae generally does not require formal project approval for PUDs in the way it does for condominiums. The lender reviews HOA documents including the CC&Rs, bylaws, and budget to confirm the project meets basic requirements, but there is no formal PERS submission or project approval database process. This makes PUD financing more streamlined than condo financing.
- ✦No formal project approval: PUDs do not require Fannie Mae or Freddie Mac project approval submissions
- ✦HOA review: lender reviews documents for adequate reserves, no excessive delinquencies, and no pending litigation
- ✦PUD vs. condo classification: determined by legal documents, not physical appearance; a detached home in an HOA can be a PUD or a condo depending on title
- ✦New PUD projects: Fannie Mae requires Type F project documentation when the developer still controls the HOA
Common PUD Issues That Affect Approval
Even though PUDs do not require project approval, lenders still review HOA health. Under-funded reserves, pending special assessments, active litigation involving the HOA, or a delinquency rate above 15% of units on HOA dues can all affect lender willingness to approve the loan. These issues can delay or kill a deal even when the borrower is well-qualified.
Aria can walk through PUD vs. condo classification scenarios and identify what HOA documentation lenders typically require. Ask at vicariointel.com.
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