Condo vs. Townhome Financing in Chicago: PUD Rules (2026)

Last reviewed: October 18, 2026 · By the Chicago Condo Loans Editorial Team

Quick answer Lenders sort a townhome by its recorded legal documents, not its looks. If it was created under a declaration of condominium, it is a condo, and condo rules apply: a project review (unless the building is small enough for a waiver), FHA or VA project approval, a master insurance policy and Fannie Mae’s condo pricing adjustment. If you own the lot and the structure and an HOA owns the common areas, it is a planned unit development (PUD): Fannie Mae generally waives the project review, the condo price adjustment doesn’t apply, and insurance usually works like a house. In Chicago, a row of townhomes or a converted two-flat can legally be a condo, so check the declaration before you assume either.

This is part of our complete guide to Chicago condo loans.

Why does the legal form matter more than how the building looks?

Fannie Mae tells lenders they “must determine if the subject unit is located in a condo or PUD” and then use the matching mortgage documents and appraisal forms. A development is a condo any time it is declared or filed as a condominium (horizontal property regime) under local law, unless local law lets that regime be created as a PUD and the legal documents specifically say it is one. Zoning alone doesn’t make something a PUD either: a project zoned as a PUD with no common property, no required HOA and no mandatory assessments is not a PUD under Fannie Mae policy.

So two identical brick townhomes on the same Chicago block can be financed differently. One may be a condo unit under the Illinois Condominium Property Act; the other may be a fee simple townhome in an HOA. Your mortgage will even carry a different rider: Fannie Mae requires its Condominium Rider (Form 3140) or Planned Unit Development Rider (Form 3150) on loans secured by a unit in a condo or PUD project.

What makes a home a PUD instead of a condo?

Fannie Mae’s PUD test (Selling Guide B4-2.3-01) has four parts. All must be true: each owner’s HOA membership is automatic and can’t be separated from the home; assessments are mandatory; the HOA owns and maintains the common property for the owners’ benefit; and the unit was not legally created as part of a condo or co-op project.

Feature	Condo	PUD (townhome or house in an HOA)
What you own	Your unit plus an undivided share of the common elements (in Illinois, everything except the units)	Your lot and the structure on it, plus HOA membership
Who owns the shared areas	All unit owners together, as common elements	The homeowners association
Illinois law	Condominium Property Act (765 ILCS 605)	Common Interest Community Association Act (765 ILCS 160), which excludes condos and co-ops; small associations are exempt unless they opt in
Mortgage rider	Condominium Rider (Fannie Mae Form 3140)	Planned Unit Development Rider (Form 3150)
How to tell	Recorded declaration of condominium; legal description names a unit	Recorded covenants (CC&Rs) and a legal description that names a lot

Condo and PUD ownership compared. Sources: Fannie Mae B4-2.1-01, B4-2.3-01 and B8-4-01; 765 ILCS 605/2; 765 ILCS 160/1-5 and 1-75.

One wrinkle: a condo can sit inside a larger PUD. Fannie Mae says any unit legally created as part of a condo or co-op within a larger PUD must meet the condo or co-op requirements, so a condo building in a master-planned community is still a condo for your loan.

How do lender reviews differ for condos and PUDs?

Detail	Condo	PUD
Fannie Mae project review	Required for most attached units (Full Review or PERS); waived for detached condos, 2- to 4-unit projects and 5- to 10-unit projects not in a larger development or master association	Waived for new and established PUDs, except manufactured-home PUDs subject to a community land trust, ground lease or shared equity arrangement
Fannie Mae condo price adjustment (purchase)	0.125% at 60.01–75% LTV; 0.750% above 75% LTV (not applicable to co-ops or detached condos)	No PUD adjustment in the matrix
Master insurance	Default: master policy on common elements and residential structures	Default: individual policy on each home; master policy only if the legal documents provide one
FHA	Project must be FHA-approved, or the unit must qualify for single-unit approval or as a site condominium	FHA’s condo approval rule (24 CFR 203.43b) covers condominium projects; ask your lender how it handles a PUD
VA	Project’s legal documentation must be VA-approved (38 CFR 36.4360)	Not covered by that condo rule; ask your lender about VA’s PUD requirements

Lender treatment of condo and PUD units. Sources: Fannie Mae B4-2.1-02, B4-2.3-01, B7-3-03 and LLPA Matrix (Sep 30, 2026); 24 CFR 203.43b; 38 CFR 36.4360.

Even when Fannie Mae waives a project review, some basics still apply to both condos and PUDs: the property must meet general eligibility rules, the project can’t be a condo-hotel, timeshare or similar ineligible type, it can’t be terminating or insolvent, and no more than six months of regular HOA assessments can have priority over the mortgage lien (with a narrow exception for state laws in place by January 14, 2014). For what a full condo review checks, see warrantable vs. non-warrantable condos and the condo questionnaire and HOA review.

What about townhomes that are legally condos?

When a townhome or small converted building is a condominium on paper, that doesn’t always mean a heavy review:

Fannie Mae: project review is waived for detached condo units (no shared walls, ceilings, floors, breezeways or garages), for units in 2- to 4-unit condo projects, and for units in 5- to 10-unit projects that aren’t part of a larger development or master association. Attached townhome condos in larger projects need a Full Review or PERS.
FHA: a unit in a project that isn’t FHA-approved can still qualify as a site condominium if the project consists of single-family detached or horizontally attached (townhouse) dwellings where the unit is the dwelling plus the land, under a condominium declaration, with no manufactured homes. Otherwise it needs project approval or single-unit approval, which is available only in projects of 5 or more units. See FHA condo approval in Chicago.
VA: any condo, including a townhome-style one, must be in a VA-approved project. See VA condo loans.
New construction: new and newly converted condo projects have extra presale and completion rules; see new construction condo loans. For PUDs, Fannie Mae treats a project as new until the developer turns over voting control of the HOA.

How does insurance differ?

For condos, Fannie Mae’s default is a master policy covering the common elements and residential structures, with limits on deductibles and an HO-6 policy when the unit interior isn’t covered or the master policy has a per-unit deductible. Details are in our post on 2026 condo insurance requirements.

For PUDs, the default is reversed: an individual property insurance policy is required for each home securing a Fannie Mae loan, unless the project’s legal documents provide for a master policy covering both the common elements and the residential structures. When owners carry their own policies, the lender doesn’t have to verify master coverage on the PUD common areas. In practice, budget for a homeowners policy on the whole structure rather than an HO-6.

What disclosures do you get from the association in Illinois?

Detail	Condo resale (765 ILCS 605/22.1)	Common interest community resale (765 ILCS 160/1-35(d))
Timing	Within 10 business days of a written request	Within 30 days of a written request
Documents	Declaration, bylaws and rules; liens and unpaid assessments; capital expenditures planned for the current and next 2 fiscal years; reserves; last financial statement; pending suits or judgments; insurance; alterations statement; principal officer	Declaration and rules; liens and unpaid assessments; capital expenditures planned for the current and next 2 fiscal years; reserve funds; last financial statement; pending suits or judgments; association insurance on common property
Who it covers	Condominiums	Townhome, villa and single-family communities with an association; small associations (10 units or less, or budgeted assessments of $100,000 or less) are exempt unless they opt in

Illinois resale disclosures for condos and common interest communities.

If a small HOA is exempt from the Common Interest Community Association Act, ask the seller for the declaration, budget, reserve balance and any planned special assessments directly and make them a condition of your offer.

Do HOA dues count the same way?

Yes. Fannie Mae’s monthly housing expense includes association dues and special assessments whether the home is a condo or a PUD, so the dues affect your debt-to-income ratio either way. Because PUD owners usually insure their own structure, compare what each association’s dues actually cover before comparing the amounts. See HOA dues and your mortgage approval. Chicago’s real property transfer tax applies to both; see condo closing costs.

How do I check which one I’m buying?

Ask the listing agent or seller for the recorded declaration. A declaration of condominium means condo; a declaration of covenants, conditions and restrictions with lots means a PUD or other HOA community.
Read the legal description on the title commitment: “Unit” plus a percentage interest in common elements points to a condo; a lot number in a subdivision points to fee simple.
Tell your lender early. The answer changes the review, the insurance, the pricing and the rider, so it should be settled before the appraisal is ordered.
If it’s a condo, ask whether the project is FHA- or VA-approved (if you need those loans) and whether Fannie Mae’s small-project waiver applies.
If it’s a PUD, get the HOA budget and confirm what the dues cover, then quote a homeowners policy on the full structure.

Frequently asked questions

Is a townhome a condo or a PUD?

It depends on the recorded legal documents, not the look of the building. A townhome is a condo if it was created under a declaration of condominium, where you own your unit plus a share of the common elements. It is a PUD if you own your lot and structure and a homeowners association owns the common areas. Ask for the declaration and check the title commitment.

Do PUD townhomes need a Fannie Mae project review?

Generally no. Fannie Mae waives project review for units in new and established PUD projects, except PUDs of manufactured homes subject to a community land trust, ground lease or shared equity arrangement. Basic requirements still apply, such as property eligibility, insurance and the limit on how many months of HOA dues can have priority over the mortgage.

Do PUD units pay the Fannie Mae condo pricing adjustment?

Fannie Mae’s condo loan-level price adjustment applies to condo units and is not applicable to co-ops or detached condo units. The LLPA matrix has no separate PUD adjustment. On a condo purchase it is 0.125% above 60% LTV and 0.750% above 75% LTV as of the September 30, 2026 matrix.

Is insurance different for a PUD townhome?

Usually yes. For PUDs, Fannie Mae’s default is an individual property insurance policy on each home, similar to a single-family house, unless the project’s legal documents provide a master policy covering both common elements and residential structures. For condos, a master policy on the common elements and residential structures is the default, often with an HO-6 policy for the unit interior.

Can I use FHA for a townhome that is legally a condo?

Yes, if it qualifies. FHA requires a condo unit to be in an FHA-approved project or to meet single-unit approval or the site condominium rules. A site condominium includes townhouse-style units where the unit consists of the dwelling and the land, with no manufactured housing.

Which Illinois law covers my association?

Condominiums fall under the Illinois Condominium Property Act. Townhome, villa and single-family communities with common areas administered by an association generally fall under the Common Interest Community Association Act, which excludes condos and co-ops and exempts small associations (10 units or less, or annual budgeted assessments of $100,000 or less) unless they opt in.

Sources

Educational content only. We are not a lender or broker, and this is not lending, legal or financial advice. Rules change; confirm details with your lender and attorney.