When trying to find solutions for financing your barndominium it is important to look at all your options. There are a number of different options available to you including FHA loans and traditional construction loans. However, if you are a veteran of the Armed Forces, a VA loan is one of your best choices. Knowing everything you can about a barndominium VA loan can help you choose wisely.
Long considered one of the top mortgage products, the VA loan is for eligible veterans and is available through many regional and national banks. The loans are guaranteed by the Department of Veterans Affairs and the rates available are typically much lower than traditional products.
Because the Department of Veterans Affairs guarantees the loans, they have more strict requirements than a traditional lender. Although barndominium VA loans are possible, they may not be the best option for the initial construction loan. Because of these strict rules, you’re better suited getting a traditional construction loan then refinancing using a VA loan.
In this article, we have put together everything you need to know about getting a barndominium VA loan.
Barndominiums have exploded in popularity over the past few years. Their wide open floor plans allow for flexible living and workspace. And their simple construction often makes them cheaper than conventional homes.
As a veteran you may be wondering—can I use my VA home loan benefit to buy or build one of these unique barndo houses?
The quick answer is yes, VA loans can potentially finance the purchase or construction of a barndominium residence.
However, some specific requirements and challenges exist. In this comprehensive guide, I’ll cover everything you need to know about using a VA mortgage for a barndo home.
What is a Barndominium?
A barndominium represents a hybrid between a barn and a residential condominium. These dwellings involve converting an existing barn into a home or building a new structure from the ground up.
Two main types of barndominiums exist
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Pole barns – Built using wood frame construction. Typically the most affordable option.
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Steel barns – Utilize a metal and steel framework Provide greater durability
In both cases, the simple exterior framework doesn’t require many interior load-bearing walls. This allows for customizable floor plans.
Barndos range widely in size, design and finishes. But they generally offer space for parking, storage, living quarters and often a workshop or office.
VA Loan Eligibility Guidelines for Barndos
The VA has specific property guidelines lenders must follow to approve a loan. Here are key requirements barndo homes must meet:
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Livable size – The interior space must adequately accommodate basic needs.
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Heating/cooling – HVAC systems must be operational and in working order.
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Electrical – All electrical systems must be safe and functioning.
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Roofing – Roof must provide durable coverage with no leaks or defects.
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Pests/rot – The home must be free of wood destroying insects, fungus and dry rot.
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Paint – No deteriorating lead-based paint can be present.
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Access – Home must be accessible from an all-weather road.
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Sewage – A safe, sanitary sewage system must be in place.
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Ventilation – Attics and crawlspaces require proper ventilation.
The property must also meet all local building codes and pass the VA appraisal.
Additionally, you’ll need to occupy the barndominium as your primary residence if using a VA loan.
Financing Options for Barndos
You have a couple options to finance purchasing or building a barndominium with a VA loan:
1. Purchase an Existing Barndominium
If you find an already-built barndo residence for sale, this route poses the fewest hurdles.
You can apply for a standard VA mortgage, just as you would with any existing home. The property simply needs to meet all the VA guidelines mentioned above.
Having a knowledgeable real estate agent and lender familiar with barndos can help streamline the process.
2. Build a New Barndominium
Constructing a new barndo home from scratch is trickier with a VA loan.
Many VA lenders shy away from construction loans because of the risks involved.
As an alternative, you may need to take out a short-term conventional construction loan first. Once complete, you can then obtain a VA cash-out refinance to pay off the builder’s loan.
Some key points about this route:
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The construction loan covers all building costs upfront.
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They usually have higher rates and last around 12 months.
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The lender disburses funds in phases based on completion percentages.
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Then you’ll need to refinance into a permanent VA mortgage after the home is finished.
Unique Appraisal Challenges
One hurdle to using a VA loan for a barndo is the appraisal. Appraisers rely on local sales of comparable homes to value properties.
But barndominiums are still relatively uncommon in most markets. This can make it hard to find good “comps” needed for the appraisal.
Working with an experienced real estate agent is key. They can help provide appraisers with relevant sales data on similar barndos and barn conversions in your area.
Being flexible on location can also help, as barndos are more prevalent in certain regions like Texas.
Cost Comparison to Traditional Homes
One of the main draws of barndominiums is their cost advantage over regular houses. Several factors contribute to their lower prices:
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Simple exterior construction
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No need for interior load-bearing walls
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Less specialized labor required
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Flexible floor plans
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Use of inexpensive finishes like epoxied concrete floors
On average, expect a new barndominium to run 15-30% less than a comparable traditional stick-built home.
However, high-end finishes can narrow the price gap. And steel barns typically cost more than wood pole barns.
Key Takeaways
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VA loans can be a great option for veterans to buy or build a barndominium residence.
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Appraisals can pose challenges due to lack of barndo sales comps.
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Constructing a new barndo may require a conventional construction loan first.
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Barndos provide an affordable alternative to conventional homes.
Overall, barndominiums present a flexible and budget-friendly housing solution eligible for VA financing. But make sure to partner with a lender and agent familiar with the unique process.
Frequently Asked Questions about VA Loans for Barndos
Below I’ll answer some common questions from veterans about using their VA home loan benefit to buy or build a barndominium residence.
Can I build a barndo from scratch with a VA construction loan?
Most VA lenders do not offer VA construction loans due to the risks involved. You may need to take out a conventional construction loan first, then refinance into a VA mortgage once complete.
What are VA appraisal requirements for barndominiums?
The appraiser must find the barndo structurally sound, safe, sanitary, properly ventilated, and adequately sized. Having good barndo sales comps helps.
Do barndos qualify for VA’s minimum property standards?
Yes, as long as the barndominium meets VA guidelines for livable space, working systems, ventilation, roofing, etc. The VA appraiser will verify compliance.
Can I buy land and build a barndo with a VA loan?
No, the VA does not offer loans for just land purchases. You must buy or build a complete dwelling ready for occupancy.
How much down payment is required for a barndominium VA loan?
The VA loan program requires zero down payment. However, you can make a down payment to lower your interest rate or avoid mortgage insurance.
What are closing costs for a VA barndominium loan?
Closing costs average 2-5% of the total loan amount. The VA funding fee also applies unless you receive an exemption.
Are VA loans limited to stick built houses or can I build non-traditional homes?
VA loans can finance different types of homes like barndos, containers, domes and more, as long as they meet VA minimum property standards.
Can the seller rent back the barndominium after closing with a VA loan?
No, the VA requires the seller to vacate the property prior to closing if purchasing an already-built barndo with a VA loan.
How much does it cost to build a barndominium?
Barndos typically run $100-$300 per square foot. Most cost 15-30% less than building a conventional home. Expect 1,500+ sq ft barndos to run $200k-$400k.
Barndominium VA Loan – The Basics
When you get a barndominium VA loan, the VA doesn’t actually provide loans. Instead, the VA provides guarantees for other institutions that do provide the loans. This lowers the risk for the loan provider, and thus down payments aren’t necessary, mortgage insurance isn’t necessary, and a lot of other benefits present themselves. For the VA, there are certain “items demanded” in return for their guarantee. Some of these demands are for the Veteran, items that limit “fees” are a good example, the downpayment aside, origination fees are capped, and other fees are capped or restricted.
Some of these demands are to help protect the VA loan guarantee program, and items that are related to loan qualification fall into this category. Part of what the VA wants is to ensure that this great benefit continues to be made available for those that have earned it and the best way to do that is to protect it from abuse.
For new construction loans for a barndominium, there is another level of demand and it relates to the protection of the construction loan. With items like requiring builders to provide 2 years of P & L’s, proof of credit worthiness, proof of liability insurance, there are no payments on the construction loan until it is completed. There is also a 12-month deadline to get it completed, all construction fees are on the builder, and there must be a 10-year warranty on new construction home.
These demands protect the Veteran and the VA’s guarantee program. These demands are also well beyond anything any regular bank would ever require from a builder. Though it does help, and it can be a great tool, it also drives up the final cost for the Veteran, and severely restricts the options for choosing a builder, which is important when you don’t live within 30 miles of a major city.
You as the Veteran not only have to qualify for such a loan, but your builder has to qualify as well and be willing to go along with the program, and it works for a builder to do that on your behalf. If you live close to major population centers, you may not have a problem finding a builder to go through this, but if you don’t, then it’s a task to work out.