Refinancing Planned Unit Developments (PUD's) and Site Condominiums

Many detached single-family homes are actually part of condominium associations or planned unit developments (PUDs). By having your home classified as part of a PUD or what is known as a site condominium, refinancing home owners can avoid the underwriting restrictions placed on standard condominiums.

Condominium loans riskier than single family home loans

Mortgage lenders consider condominium loans to be riskier than single family homes because of the danger that the condominium association may face financial difficulties. For attached condominium units with shared roofs, walls and other structural items, these loans are in fact riskier because they rely upon the condominium association to succeed financially in order to be able to replace those items as they age.

The financial stability of attached condominiums is also endangered when owner occupancy rates decrease. For this reason, mortgage lenders require minimum rates of owner occupancy (usually 60%) in order to approve a loan for an attached condominium because lenders believe that owner occupants are more likely to make sure their homes are properly maintained.

Because of these issues, mortgage programs for condominiums are often restricted with lower loan to value ratios 5% to 10% lower than allowed for single family homes. Also, many lenders have simply stopped lending on condominiums at all in areas hardest hit by depressed real estate real estate prices. For example, many lenders refuse to lend on any condominium located in many counties of Florida, Nevada and Arizona.

Meeting the Requirements for refinancing a condominium

The other key issue that arises when refinancing these type of properties is that if the property is considered to be part of a condominium, then the underwriter must review all condominium documentation and the condo association must meet all pre-sale and owner occupancy requirements. For example, if you are in a PUD treated as a condominium, then at least 70% of the homes must be sold and at least 60% must be owner occupied; on the other hand, if the PUD is treated as a single family, then neither of those requirements apply.

Fortunately, mortgage underwriting requirements at Fannie Mae and Freddie Mac have been updated to reflect the fact that detached single-family homes in a community are more like single-family homes than attached condominiums. As a result, there are underwriting guidelines that specify that site condominiums and PUDs can be treated as single family homes as long as they meet certain guidelines.

Condominium associations that consist solely of single family, detached dwellings can be considered site condominiums. Site condominiums are treated as single family homes and as such are not subject to the above condominium restrictions.

PUDs must be looked at individually, because some PUDs can either be condominiums or individually owned. If a PUD is part of a condominium association, then the lender has to treat the PUD like a condominium and all restrictions apply. If the PUD units are individually owned, then the homes can be treated like single family properties and condominium restrictions do not apply.

Determining what type of site condominium or PUD you are in for mortgage refinance purposes can be tricky. In many cases, lenders over the past few years did not analyze condominium statuses closely enough, so you could find yourself facing challenges refinancing that you did not see when you applied.

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