Condos, PUDs, Co-ops: What's the Difference and why is it important?
Owning a condo is similar to owning a house. You have a deed and mortgage and pay property taxes, but what you really own is “airspace.” Walls, floors, and ceilings are owned in common among all residents. You join the homeowners association (HOA) and pay monthly dues to cover management, hazard insurance, maintenance, garbage collection, landscaping, etc. Maintenance is shared with neighboring condo owners; your property value depends on the condition and desirability of the entire development. Condo owners usually can remodel only within the guidelines provided by covenants, conditions, and restrictions, which may specify everything from how maintenance is handled to what color curtains you can hang. It’s a smart idea to read them before buying a condo. There may also be limitations on the type of loan you can use to purchase within some complexes depending on owner-occupancy vs rented. Your real estate professional can usually research if the unit qualifies for any type of loan or has restrictions.
Planned Unit Development (PUD)
PUD owners individually own the residential structure and a small parcel of land surrounding it. As with condo ownership, PUDs require membership in the HOA, but the land around each unit is maintained by that unit’s owner. If you’re interested in having a bit of a yard, this is the way to go.
This is a housing complex owned by a corporation made up of all the tenants — you become a shareholder in the corporation that owns the property. The number of shares you are issued depends upon the size of the unit you own. Larger units’ owners have more power in deciding how the building is run. You also pay fees to cover your portion of the building’s property taxes, mortgage, and the costs of repairs and improvements for the common areas. Co-op owners depend on each other financially, so expect heavy scrutiny of both your financial history and personal life.
This is an architectural term commonly used to describe an attached row house and not actually a form of ownership. These units may be in there own area or mixed with condominiums into a larger complex. Townhomes don't usually have the loan restrictions that condominiums may have within some complexes. Ask your real estate professional about local options for townhomes VS condos depending on your loan.
Advantages of Common Interest Ownership
Considering all the options, what are the advantages of buying a condo, PUD, or co-op? First, prices are typically much lower than for single family homes, and landscaping and maintenance are minimal or nonexistent. Some people feel safer in a “cluster” environment, while enjoy having a common maintenance service.
The disadvantages? Homeowners’ dues are not tax-deductible. The dues are an ongoing expense that will lower the amount of mortgage you can qualify for. Documents may be long and complex; you may want to hire a real estate professional to review them for you.