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Townhouse/PUD vs. Condo: Affects Rate and FHA Financing

We frequently have Realtors and borrowers confuse PUDs (Planned Unit Developments) or “townhouses” with “condos.” It is significant b/c condo complexes need to be FHA approved before a unit can be financed by FHA, and conventional condo financing often requires slightly higher interest rates. PUD/Townhouse complexes do not need to be FHA approved; individual PUDs/townhouses can get FHA financing no matter what.

Condos and PUDs can look identical. Attached side-by-side two-story units that all touch the ground can be zoned “CONDO” or “PUD”. Complexes with units that float (do not touch the ground) will almost always be zoned Condo (PUDs must touch the ground).

Realtors often call PUDs “Townhouses,” but “townhouse” is just a style. With a PUD, the owner owns the lot or ground underneath the unit. With a condo, the owner owns an equal and undivided interest in the entire lot (and common areas).

The way to know the actual zoning is to look at the LEGAL DESCRIPTION; a PUD will have a separate lot # and/or a small lot size under it. A condo will have the same lot # as all the other condos, or NO lot # at all, and/or a HUGE lot size (like 11 acres) under it.

The MLS often misreports zoning, so checking the legal description is very important.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646