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.
Building a barndominium is an attractive option for many homeowners looking for affordable, durable, and spacious housing. Barndominiums combine the rustic exterior of a barn with the comforts and amenities of a modern home. With steel construction, open floor plans, and high ceilings, they provide unique living spaces at relatively low costs.
However, financing the construction of a barndominium can be tricky. Since they are non-traditional homes, some lenders may be hesitant to provide loans. With the right approach, you can secure financing and make your barndominium dream a reality. Here is a step-by-step guide on how to get a loan to build a barndominium.
Choose the Right Lender
The first step is finding a lender open to financing barndominium construction. The best options are often local banks and farm credit lenders.
Local banks are familiar with the local housing market and may be more receptive to unique projects like barndos. Establish relationships with loan officers to find a lender willing to work with you.
Farm Credit lenders have experience financing agricultural structures, making them ideal for barndo loans. They offer competitive rates and flexible terms.
Mortgage brokers can also match you with lenders open to barndominium financing Tell them your plans upfront to find the best fit
Have Detailed Plans and Budget
Lenders will want to see detailed construction plans and a realistic budget. Work with your builder to develop:
- Floor plans showing layout and dimensions
- Elevations displaying exterior finishes
- Materials list with costs
- Itemized budget accounting for all materials, labor, permits, etc.
Thorough plans prove this is a well-thought-out project and help the lender accurately value the home. Honest budgets establish you understand the costs involved.
Seek Pre-Approval
Once you have plans and a budget, meet with potential lenders to get pre-approved. This involves:
- Submitting loan application and supporting documents
- Providing credit history and income verification
- Disclosing assets, debts, and down payment funds
- Outlining construction timetable and costs
Pre-approval determines the loan amount you qualify for. It also shows lenders you are serious.
Have Land to Use as Collateral
Securing a construction loan is easier if you already own the land the barndo will be built on. The land can be used as collateral, reducing lender risk.
If you don’t yet have land, look into combined purchase and construction loans. But be aware, financing will likely be tighter.
Know the Loan Options
Construction loans come in several forms. Common options include:
Construction-Only Loan
- Finances just construction
- Must get end-loan once built
- Gives flexibility to shop rates
Construction-to-Permanent Loan
- Single loan for construction and end-financing
- Converts to regular mortgage once built
- Lower overall costs
Compare options to pick the best loan for your situation. Ask lenders what they recommend.
Have a Sizable Down Payment
Putting down 20% or more of the project costs greatly improves your chances of loan approval. Lenders want to see you are invested.
If 20% is not feasible, have as large of a down payment as possible. Some lenders may accept 10-15%.
Get an Appraisal
Lenders will require an appraisal of the future home to determine its market value. Make sure the appraiser understands the barndominium concept so the home is properly valued. Highlight unique features that add value.
An accurate appraisal satisfying the lender’s requirements is key to loan approval.
Select the Best Loan Terms
Once approved, you can select the loan terms that fit your needs and budget. Consider:
- Loan amount and down payment requirements
- Interest rates and annual percentage rate (APR)
- Loan length (e.g. 15-year, 30-year)
- Fixed or adjustable interest rate
A longer loan term reduces monthly payments but increases interest paid over the life of the loan. Shop around for the most favorable rates and terms.
Build Equity
As you make mortgage payments, you build equity in your barndominium. Making extra principal payments reduces interest costs and builds equity faster.
Down the road, built-up home equity can help finance barn additions, upgrades, or even a guest house.
Be Patient and Persistent
It takes diligence to get barndominium financing, but take a methodical approach and remain patient and persistent. With proper planning and preparation, you can make your unique barn home dream a reality.
Follow these steps and you will be well on your way to securing the financing you need to build the barndominium of your dreams!
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.
More About Qualifying for a New Construction Loan
There is quite a bit of information available online about traditional home loans, but there is very little dealing with new construction loans. Construction loans are a bit different. To begin with, adding the extra barndo component makes it doubly hard to find reliable facts, figures, and checklists.
FINANCING Your BARNDOMINIUM | Loan For Your Barndominium
FAQ
Is it hard to get a loan to build a barndominium?
Why do banks not finance barndominiums?
What credit score do you need for a barndominium?
Is building a barndominium a good investment?
Can you get a loan to build a Barndominium?
One of the challenges of building a barndominium is finding a lender who is willing to approve a loan for construction. The lending requirements are often strict, such as requiring a large down payment and a high credit score. Luckily, the United States Department of Agriculture (USDA) may have a solution.
How much money do you need to build a Barndominium?
With an FHA loan, you may need a down payment of $2,555 to $7,980. A USDA loan for barndominium allows you to build with no money down, which may give you more time to prepare your finances. The eligibility requirements are relatively lenient compared to traditionally financed loans.
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.