The path to owning a barndominium is filled with many hurdles and obstacles. However, most of them are completely manageable and can be overcome with a little bit of planning. One of these obstacles that many people bump up against is getting financing for their barndo—because of this, getting an FHA loan for a barndominium is a great alternative that can be incredibly helpful.
Buying or building a barndominium home is becoming an increasingly popular option for many homeowners. Barndominiums allow you to have a unique home with ample space for an affordable price. However, securing financing can be tricky with these non-traditional homes. This is where an FHA loan comes in handy. FHA loans have more lenient requirements and make financing barndos possible. If you want to get approved for an FHA loan for your barndo, here is what you need to know.
What is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. This federal backing makes lenders more willing to approve these loans. FHA loans are ideal for first-time home buyers and those with lower credit scores.
Here are some key things to know about FHA loans
- Require a minimum credit score of 500
- Down payments as low as 3.5%
- Allow higher debt-to-income ratios
- Offer low mortgage insurance rates
- No maximum income limits
FHA loans provide more flexible lending options. This makes them a great choice when trying to finance a unique home like a barndominium
FHA Loan Requirements for Barndominiums
Since barndominiums are non-traditional homes, there are some specific requirements to get FHA approval. Here are the key criteria your barndo must meet:
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Permanent foundation – Your barndo must be permanently affixed to the ground with a foundation
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Residential zoning – The property must be zoned for residential use in order to qualify.
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Certificates of occupancy – You will need all proper building permits and certificates before applying.
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Minimum standards – The home must meet all HUD minimum property standards. This relates to livability, safety, and structural soundness.
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Appraisal – An FHA appraiser must assess the property to ensure it meets requirements.
As long as your barndominium meets these criteria, you can get approved for an FHA loan. The FHA will be looking to make sure it is a suitable residential property.
How to Get an FHA Construction Loan
If you are looking to build a new barndominium, an FHA construction loan is the best option. This will provide financing in stages as your home is built. Here is the basic process:
1. Buy land
You can either buy land upfront or rolled into the total loan amount. Make sure the property meets location and zoning requirements.
2. Find a contractor
Your contractor must be licensed and approved to work with FHA loans. Shop around to find the best quote.
3. Get pre-approved
Work with a lender to get pre-approved based on your finances, credit, income, etc. This will determine the loan amount you qualify for.
4. Submit plans
Provide detailed construction plans and a timeline approved by your contractor. This is crucial for approval.
5. Close on the loan
Once approved, you will close on the loan and can begin construction as funds are disbursed.
6. Construction
Your lender will release funds in stages as work is completed. Timeframes and inspections will be required.
7. Convert to permanent loan
After construction is finished, your loan converts into a traditional 15 or 30 year mortgage.
Following this process allows you to secure financing in phases for your barndo build.
Tips for Getting Approved
Here are some top tips for getting your FHA barndominium loan approved:
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Have a minimum credit score of 580 – This will qualify you for the lowest downpayment of 3.5%.
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Shop lenders – Compare multiple lender quotes to find the best rates and terms.
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Get pre-qualified – Being pre-qualified will make for a smoother approval process.
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Pay down debts – The lower your debt-to-income ratio, the better your chances.
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Provide detailed plans – The more prep work you do upfront, the better.
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Research requirements – Understand barndo specifications to ensure your property complies.
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Consider upgrades – Making upgrades to increase value can help your appraisal.
With the right preparation and research, getting approved for an FHA barndominium loan is achievable. Put in the work upfront and you will be on the path to financing your dream barndo home.
What to Expect After Approval
Once approved, there are still some important things to be aware of throughout the process:
Construction Inspections – There will be required inspections at various construction stages before additional funds are released.
Mortgage Insurance – You will need to pay mortgage insurance with an FHA loan. This is an additional cost.
Principal Residence – You must move into the barndo as your principal residence within 60 days of completion.
Completion Deadline – There will be a completion deadline, usually around 6-12 months. This can sometimes be extended with lender approval.
Conversion – At the end of construction, your loan will convert into a traditional mortgage with the same interest rate and term length.
Occupancy Standards – As with any home, your barndo must meet all local occupancy codes and regulations.
While approval is a big first hurdle, make sure you fully understand the ongoing requirements as well.
Alternatives to FHA Loans
In some cases, FHA loans may not be right for your situation. Here are a few alternative financing options to consider:
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Conventional loans – These have stricter requirements but may provide better rates.
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USDA loans – For rural properties, USDA loans can be an option.
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VA loans – For veterans, VA home loans are worth exploring.
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Renovation loans – These allow you to finance updates to an existing structure.
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Construction loans – Some banks offer barndominium-friendly construction loans outside of FHA.
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Owner financing – In some cases, owner financing may be available from the seller.
Always talk to multiple lenders to weight the pros and cons of each type of loan for your goals and financial situation. An FHA loan is just one potential option.
Is an FHA Loan Right for You?
Here are a few signs that an FHA loan may be a good fit:
- You have a credit score between 500-579
- You have a limited downpayment saved up
- You want to keep your mortgage insurance costs low
- You are a first-time home buyer
- You have previous credit difficulties
- Your debt-to-income ratio is higher
The flexibility and backing of an FHA loan makes barndominium financing attainable. If you meet the requirements, it can be a great option. Just make sure to do your homework upfront and fully understand the process.
Finding the Right FHA Lender
Choosing the right FHA lender for your barndominium loan is key. Here are a few tips:
- Ask local barndo owners for referrals
- Search online consumer reviews for top rated lenders
- Look for lenders familiar with barndominiums
- Compare interest rates and closing costs
- Ask about construction loan experience
- See if they service loans locally or nationally
- Inquire about customer service practices
Take your time to research multiple lenders. Getting the right loan officer on your side can make the financing process much smoother. Having an experienced barndominium lender is a huge help.
Ready to Start the Process?
Hopefully this overview gives you a better understanding of what is involved with getting approved for an FHA barndominium loan. While there are specific requirements, an FHA loan can make your dream barndo build a reality. If you take the time to prepare your plans, finances, and research lenders, getting approved is definitely possible.
The popularity of barndominium homes is on the rise for good reason. With the right lender, an FHA loan can turn your barn plans into a real home. So start putting together your information today so you are ready when it comes time to apply. The first step is to talk to lenders and get pre-approved. From there, you can move forward with confidence knowing your financing is lined up. Get ready to start the rewarding process of building your very own barndominium oasis!
Get a Barndominium Loan Quote NOW
Getting an FHA loan for a barndominium isn’t easy, but it can be done. With the right planning and preparation, you can get approved for a loan when you might not otherwise be able to. An FHA loan for a barndominium can help you build the home of your dreams. By knowing what these loans require and what you need to do, you can get started as soon as possible.
How to Get an FHA Loan for a Barndominium
Before you can get a loan for a barndominium using a FHA loan, you have to know what is required. Like with a traditional construction loan, you have to have a detailed construction plan ready to go. This will show the bank that you plan on finishing the job and that you have a timeline in place. Preparing for all the steps can give you the upper hand when trying for an FHA loan for a barndominium.
The first thing you have to do when getting an FHA loan for a barndominium is buying a plot of land. You can either get a separate loan for this land or simply purchase it outright. Depending on your means and what you want to do, one of these options will be better for you than the other. When choosing land, be sure to think about all the implications of a specific location.
When choosing land, think about things like its readiness and your ability to bring utilities to it. Any extra work you need to do on the land will cost you more money in the long run. Finding land that is within your desired location and is ready to go is one of the most critical steps. With this step sorted out, you can have the best odds of getting an FHA loan for a barndominium.
Getting pre-approved is one of the other crucial steps of getting an FHA loan for a barndominium. FHA loans have less stringent requirements than other loans. That being said, you still need to be in good financial shape in order to secure one. In some areas, there are FHA loan limits, so you will need to be sure that you will not be exceeding them before you start buildings.
To get an FHA loan for a barndominium, you need to have a credit score of at least 500. You will also have to have a solid debt-to-income ratio of no more than 43 percent. If your project is HUD-approved and you have a 580-or-more credit score, you can put down a down payment of just 3.5 percent. If you don’t meet these requirements, you will have to put down 10 percent or more.
One of the important requirements of getting an FHA loan for a barndominium is having a builder. You will have to use a builder who is approved by the bank and has all their licensing and certifications. In some cases, you will need to send this paperwork to the bank beforehand. Having it handy will streamline the process and help your approval odds.
Choosing a builder can be a complicated process. Be sure to read reviews of any builder you are considering thoroughly. This will show you how they treat their clients and what their process is like. You should also look into getting quotes from as many builders as possible to help you narrow it down.
FHA Loan for a Barndominium
FAQ
Can I build a barndominium with an FHA loan?
Is it hard to get a loan to build a barndominium?
Can an FHA loan be used to build a house?
What credit score do you need to build a barndominium?
Can you get an FHA loan for barndominiums?
You may be able to use an FHA loan to cover the costs of purchasing a pre-existing barndominium that is classified as a permanent residence and that is up to building codes, however, when it comes to FHA construction loans, it can be a bit more tricky to navigate the FHA.
Can you finance a Barndominium with no down payment?
If you’re in the military or are a veteran, you can finance your barndominium with no down payment through a VA loan. They offer low-interest construction and purchase loans for homeowners, and their credit requirements are more lenient than most because it’s a service to our military and veterans.
How do I finance a Barndominium?
If you are looking to finance the purchase of a barndominium, then you may have mortgage options through a conventional lender, the USDA, FHA, or the VA. If you are looking to construct a brand new barndominium then you may be able to get a construction-only loan or a construction to permanent option.
How does Barndominium financing work?
The specifics on how barndominium financing works will vary depending on the type of loan. Personal loans or home improvement loans typically have the most lenient application process. In most cases you’ll start with an application to get prequalified.