How to Get a Loan for a Barndominium in 2023

Financing a barndominium can be a challenge, but being prepared will help you find a lender for your project.

Farm credit lenders and local banks are your best bets for getting a new construction loan on a barndominium. Having the following items can help the process along as well:

By knowing what to expect when financing a barndominium, you can get the loan you need for your dream home.

A barndominium is a unique home design that combines the functionality of a barn with the comforts of a traditional house. As these hybrid home styles grow in popularity across rural America, more people are exploring how to finance the construction or purchase of a barndo. Getting a loan for your dream barndominium is possible, but does require some preparation and knowing where to look.

What Exactly is a Barndominium?

First, let’s make sure we’re all on the same page about what a barndominium is A barndominium takes a standard post-frame pole barn construction and outfits the interior as a residential living space. The exterior maintains the traditional barn aesthetic, with a metal roof and siding Inside, the floor plan incorporates areas like a great room, bedroom(s), bathroom(s), kitchen, and more. Many barndos also have space for storage, a workshop, or garage.

Barndominiums provide a more cost-effective alternative to conventional home construction The simple pole barn framing and metal envelope reduce material and labor costs Owners typically finish out the interior themselves over time, This “shell and infill” approach allows for immediate occupancy while completing decorative details down the road,

Why Securing a Loan Is Trickier

You can absolutely finance a barndominium using a traditional mortgage or construction loan. However, securing financing presents unique challenges compared to a typical house:

Appraisal – Since barndominiums are less common, appraisers may struggle to assign accurate value. They rely on comparable listings, which are limited.
Resale Value – Barndos don’t always appreciate as quickly as conventional homes. This makes some lenders hesitant.
Non-Traditional Design – Lenders prefer proven home styles with predictable sales prices. Unique barns cause uncertainty.
DIY Finish Work – Mortgages require a certificate of occupancy. Lenders want turnkey homes, not ongoing owner projects.

Tips for Qualifying for a Barndominium Loan

While tricky, getting a barndominium loan is very feasible if you prepare properly. Here are some tips to improve your chances:

Have Detailed Plans and Specs – Work with an architect to create professional blueprints. Provide material/appliance specs and a timeline.
Get Multiple Build Quotes – Have at least 3 itemized bids from licensed contractors to validate costs.
Check Local Zoning Laws – Get permits proving the barndo meets residential codes for your area.
Improve Your Credit Score – Lenders view 700+ scores as ideal. Pay down debts and dispute errors to increase yours.
Save for a Down Payment – Put down 20% or more if possible. Big down payments reduce the lender’s risk.
Research Local Values – Use Zillow to find barndo sales comps supporting the appraised value you need.

Where to Seek Barndominium Construction Financing

Finding a lender familiar with barndos can make or break your ability to get approved. Here are some of the best places to seek financing:

Local Credit Unions – Smaller credit unions may be more flexible than big banks. Having an existing relationship helps too.

Farm Credit Lenders – These institutions understand and finance agricultural buildings regularly.

USDA Loans – In very rural areas, USDA construction loans offer favorable rates and $0 down payments.

FHA Loans – FHA loans work well for poorer credit borrowers, with down payments as low as 3.5%.

VA Loans – Qualified veterans and service members can finance barndos with no money down through VA loans.

Mortgage Brokers – Brokers have access to niche lenders like those financing barndos.

Alternative Lenders – Online lenders provide financing options when banks say no. However, interest rates are higher.

Securing Funding for a Barndo Purchase

If you’re buying an existing barndominium instead of building, traditional mortgages or home equity loans apply:

Conventional Loans – Have 10-20% down payment available. Rates are tied to credit scores.
FHA Loans – Require only 3.5% down and have lenient credit requirements.
VA/USDA Loans – No down payment is required if you qualify for these programs.
Home Equity Loan – Use existing home equity as collateral if you lack savings for a down payment.
Owner Financing – Some sellers provide financing. This avoids bank qualifying but comes at a higher interest rate.

Final Tips for Getting Barndominium Loan Approval

To recap, follow these essential tips when seeking financing:

Verify zoning/permits are suitable for residential occupancy
Have professional blueprints, specs, and multiple build quotes
Improve your credit score as much as possible
Research sales comps to support the appraisal
Save up a substantial down payment – 20% or more ideally
Seek lenders familiar with barndominiums specifically

While it can be a challenge, with proper preparation and persistence, you can absolutely land financing to build or buy your dream barndominium home. Don’t get discouraged if your first loan application gets denied. Implement the tips above, refine your approach, and stay determined to make your barndo dreams a reality. The perfect financing option is out there!

Types of Loans for Barndominiums

There is a substantial difference between a construction loan and a traditional mortgage loan. Loans from banks, credit unions, and even farm credit institutions are typically going to be higher than conventional mortgage loans and issued for shorter terms. Usually, that’s 15 years rather than the conventional 30-year mortgage most folks are used to.

Funding your barndo construction will be done in two parts:

The Construction Loan – Usually a one-year loan for actual construction costs

The Permanent Loan – This will pay the remaining costs and set your new monthly payment based on the amount remaining on the construction loan, plus the traditional loan on the property itself.

Almost invariably, you will need to come up with a minimum of 20% of the loan value, in the case of a construction-to-permanent loan, that would include the total price of the property and the construction of the house.

Gather All the Details

The more detail you have, the better your chances. You’ll need items like:

Blueprints with schematics and a floor plan
Interior details
A credible supplies list and realistic timeline
A roster of subcontractors with current bids (if you are acting as owner-builder)

All these things build confidence that you can follow through on the lender’s investment. As a rule of thumb, anything you can bring with you that will:

Raise the confidence level of the lender about your ability to make it happen. Or

Convey the idea that he or she is financing a well-thought-through project will significantly Enhance your chances of getting approved.

Finally, be aware that at the end of construction, you will be required to provide an updated appraisal. Or a final inspection with recertification of value.

FINANCING Your BARNDOMINIUM | Loan For Your Barndominium

FAQ

Is it hard to get a loan to build a barndominium?

Getting a home loan for a barndominium can be tricky since many lenders are unfamiliar with these types of structures. However, it is far from impossible. You just need to be able to fulfill your lender’s requirements as well as the stipulations set out by your particular loan program.

What credit score do you need for a barndominium?

While criteria varies between institutions, ideal credit scores for the best barndominium loan rates start around 720+ or higher. This provides more assurance to lenders given barndos don’t yet have comprehensive comparable sales data that appraisers prefer.

Why do banks not finance barndominiums?

Not all lenders will finance barndos. That’s because they’re a relatively new type of home and are considered a unique property by lending guidelines. Thankfully, as these metal homes grow in popularity, getting a conventional loan for barndominium purchases and refinances is getting much easier.

Will an FHA loan cover a barndominium?

FHA loan: FHA loans are available for people with less than perfect credit scores to purchase barndominiums with as little as 3.5% down with a credit score above 580, and 10% down with a credit score anywhere from 500 to 579.

Do you need a down payment to buy a Barndominium?

USDA loans offer 100% financing, which means that you do not need to make a down payment. If you qualify for the loan, you do not need to start making payments until after the barndominium is built. Construction loans obtained through traditional financing often require a 20% down payment.

Can you get a loan for a Barndominium?

If so, you could use a USDA loan to finance your barndominium with $0 down if your plan appraises for its cost. FHA is another government-backed loan offered by both private lenders and banks. The qualifications are determined by the government and underwriters and are designed to help those with below-average credit scores secure a home loan.

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 much does a Barndominium construction loan cost?

Construction loans obtained through traditional financing often require a 20% down payment. The average cost of new barndominium construction ranges from $73,000 to $228,000, requiring a down payment between $14,600 and $45,600. FHA loans are an alternative option for those with poor credit or limited income.