Property takes numerous types and forms, each market has its own unique structure of real estate property types which can provide income or equity growth or both for those with bad credit.
Planned Unit Development (PUD)
A property that is comprised of Single Family Homes, Town Homes or Condominiums. The individual homes and land are privately owned, but common elements such as roads, recreational facilities and open areas are owned and maintained by a mandatory Homeowner’s Association. Owners in PUDs are required to be members in and pay for the Homeowners Association.
A condominium is created out of vertical space. Instead of owning a parcel of land, you purchase a subdivided piece of space contained within a condominium regime, which may also be referred to as an apartment or a townhouse. The walls, common elements and all improvements are owned and maintained by the condominium.
A corporation that owns real estate is referred to as a cooperative. To purchase a cooperative unit the owner actually purchases a pro rata share of the corporation stock. The corporation is responsible for paying real estate taxes, underlying mortgages, and all common elements maintenance.
A long-term ground lease is a leasehold estate. Renting land out for unencumbered use instead of selling creates a ground lease. The land is returned at the end of the lease term, in it’s improved state, to the landlord.
Single Family Detached (SFD) properties are referred to as Fee Simple. The land is unencumbered by any covenant requiring ownership in an association. Attached homes can also be Fee Simple as well.
With the above listed real estate property types there is always an associated risk for the buyer and the lender. Primarily, there are two sources of risk associated with property underwriting (loan approval):
- Is the lender taking a risk if they have to re-sell the property after a foreclosure?
- Is the borrower accepting a risk by living in a certain property type?
To make this short and sweet, risk is evaluated by outside factors that impact the borrower. An example would be with a Homeowners Association property type. They are responsible for common areas of the dwelling. Someone slips on ice on the sidewalks and sues the association. If their insurance policy fell short, and they lost the law suit, they might go bankrupt which would adversely impact the property values.
Determining the property type to pursue has it advantages when an underwriter in dotting the “i’s” and crossing the “t’s”, try to weigh the pro’s and con’s of high risk real estate property types.
Property Type To Mortgage Theory