Everything You Need to Know About Loans to Build a Barndominium

Barndominiums also known as barndos, combine the functionality of a barn with the comforts of a home. These unique hybrid structures are increasingly popular amongst rural homeowners looking for affordable, flexible living spaces. However, financing the construction of a barndo comes with its own considerations.

In this comprehensive guide, we’ll cover everything you need to know about getting loans to build your dream barndominium, including:

• What is a barndominium and what are the benefits?
• How much does it cost to build a barndo?
• What construction loans are available for barndos?
• How to qualify for a barndo construction loan
• Helpful tips for financing your barndominium

Let’s get started!

What is a Barndominium and What Are the Benefits?

A barndominium combines the purpose-built functionality of an agricultural barn with the amenities of a residential home. The main structure consists of a large, open floor plan barn built with cost-effective post-frame construction. Within this versatile metal shell, separate spaces are framed for living quarters with full home finishes.

Barndos offer many advantages over traditional houses

• Cost savings: Post-frame barns cost around $45-$60 per square foot to build. With finishes, a basic barndo can be constructed for $100-$150 per square foot, compared to $200+ for conventional homes.

• Customization: The interior can be divided into zones for different needs like kitchen, bedrooms, baths, a workshop, storage areas, etc.

• Energy efficiency: The centralized open layout, abundant natural light, and high insulation standards make barndos cheaper to heat and cool.

• Appreciation: Barndos generally hold value better than comparably-priced suburban homes.

How Much Does it Cost to Build a Barndominium?

The cost to build a barndominium can vary dramatically based on size, complexity, materials, and location. However, here are some averages for barndo construction costs:

• Metal barn shell: $45-$60 per sq ft

• Interior finishes: $50-$100 per sq ft

• Total for a basic barndo: Around $100-$150 per sq ft

• 1,500 sq ft barndominium: $150,000 – $225,000

• 3,000 sq ft barndominium: $300,000 – $450,000

Additional costs may include:

• Site preparation
• Utility installation/hookups
• Architectural plans
• Permits and fees
• Contractor overhead

Get multiple quotes to understand accurate costs in your area.

Construction Loans Available for Barndominiums

You’ll need a construction loan to finance the building of your barndo. Here are two common types of construction loans that work for barndos:

1. Construction-Only Loan

This short-term loan covers construction costs. It’s disbursed in stages as phases complete. Once the barndo is built, you must convert it to a permanent mortgage. Drawbacks are higher rates and requiring refinancing.

2. Construction-to-Permanent Loan

An all-in-one financing solution that converts to a permanent mortgage once construction completes. This avoids refinancing and may have lower rates. However, the total amount must be approved upfront.

Banks, credit unions, and farm credit lenders like AgSouth and Rural 1st offer construction loans suitable for barndos. Shop around for the best rates and terms.

How to Qualify for a Barndominium Construction Loan

Lenders evaluate the following factors to approve barndo loans:

• Credit score: Aim for 680+ for the best rates. Pay down balances and dispute errors to improve your score.

• Debt-to-income ratio: Lenders look for DTI below 43%. Reduce monthly debts and increase income if possible.

• Down payment: Typically 15-20% minimum. Some lenders may accept lower with strong credit. The more you put down, the better.

• Loan-to-value ratio: The loan amount compared to the completed value of the barndo. Aim for an LTV of 80-90%.

• Plans and specs: Provide detailed floor plans, budgets, materials lists, and construction timelines.

• Contractor agreements: Formal contractor quotes, licenses, insurance, and schedules carry weight.

Tips for Financing Your Barndominium

Here are my top tips for securing funding for your barndo build:

• Shop construction loans from multiple lenders to compare rates, fees, terms, and requirements. Look beyond banks at farm credit unions and rural lenders.

• See if you qualify for VA, USDA, or FHA loans. These programs can offer lower down payments and interest rates.

• Consider using equity from your current home as a down payment through a cash-out refinance or home equity loan.

• Look into down payment assistance programs. Grants and low-interest loans may be available, especially for low-income borrowers.

• Ask the seller for owner financing if purchasing land. This spreads payments over time rather than one lump sum.

• Time applications for late fall/winter. Less construction demand can mean better loan rates and terms.

• Raise your credit score and pay down debts to improve loan eligibility.

• Adhere closely to construction timelines and loan draw schedules to avoid delays or penalties.

• Do as much legwork yourself as possible. Provide detailed plans, budgets, permits, etc. to show you’re serious and organized.