How to Get a USDA Loan for a Barndominium in 2023

Not everyone using a USDA loan needs to or wants to buy a standard house. There are many other options including condos, manufactured homes, and even barndominiums.

For those looking to make a home in a rural area, a barndominium is an increasingly popular choice. But what is it?

Barndominiums are becoming an increasingly popular housing choice, especially for rural homebuyers These unique structures combine the openness of a barn with the comforts of a modern home.

But when it comes to financing a barndo, securing a mortgage can be tricky. Many conventional loans don’t work with these non-standard properties.

That’s where USDA home loans come in. The USDA mortgage program is specially designed for rural areas, making it a natural fit for barndominiums

In this complete guide, we’ll break down everything you need to know about getting a USDA loan for a barndominium, including:

  • Barndominium loan guidelines
  • Construction vs purchase financing
  • The pros and cons of barndos
  • USDA eligibility requirements
  • How to find a lender who offers barndo loans

Let’s start with an overview of what exactly barndominiums are all about.

What Is a Barndominium?

A barndominium is a home built inside a steel agricultural-style barn frame. These are typically large, open floor plan structures with high ceilings.

Barndos allow for flexible use of space. Many have shops, garages or workspace built into the design.

They are faster and less expensive to build compared to a conventional home. But barndominiums require land zoned for residential use.

Overall, these barn-inspired houses blend the utility of agricultural buildings with modern residential finishes and amenities.

Can You Get a USDA Loan for a Barndo?

The good news is yes – USDA loans can be used to purchase or construct a barndominium.

These mortgages must meet certain eligibility standards, which we’ll cover next. But the USDA program provides a great financing option for these unique rural homes.

Here are the two main ways to use a USDA loan for a barndominium:

Purchase financing

  • Buy an existing barndominium
  • Must meet USDA property standards

Construction loan

  • Build a new barndo from scratch
  • One-close loan for land + construction

Now let’s look at the specific USDA loan guidelines.

USDA Loan Guidelines for Barndominiums

To qualify for a USDA mortgage, both the property and borrower must meet eligibility criteria set by the USDA.

Here are the key requirements when it comes to barndominium financing:

Property eligibility

  • Located in USDA-eligible rural area
  • Meets minimum USDA property standards
  • Is primary residence, not investment property

Borrower eligibility

  • U.S. citizen or qualified resident alien
  • Income within 115% of area median
  • Credit score typically 640+

The property standards help ensure the barndo is a sound residential structure. This includes having essential utilities and functional systems.

As for borrowers, income limits and credit requirements apply just like any USDA loan.

The Pros and Cons of Barndominiums

Before pursuing USDA financing, it’s important to weigh the unique pros and cons of barndominiums:

Pros

  • Large, open floorplans
  • Lower cost to build
  • Blends home and workspace

Cons

  • Less resale value
  • Noisy exterior
  • Need land zoned residential

Barndos offer versatility and budget-friendly construction. But they aren’t ideal for everyone.

Carefully consider whether the barndominium lifestyle is right for your needs.

How to Find a USDA Lender for Barndos

The challenging part is connecting with a lender who is willing to finance barndominiums.

Many mortgage lenders shy away from non-standard properties like barndos. But options do exist if you know where to look:

  • Ask your real estate agent for lender referrals
  • Search online for “USDA barndominium loans”
  • Connect with specialized rural lenders

The ideal lender has specific experience with barndo financing. This streamlines the mortgage process.

Applying for a USDA Barndominium Loan

Once you find a lender, the application process is similar to any USDA purchase or construction loan:

  • Submit loan application and documents
  • Lender verifies income, credit, and eligibility
  • Underwriting reviews property appraisal
  • Close on mortgage once approved

It’s critical to work with an experienced lender familiar with barndo loans. This helps ensure quick approval.

Choose the Barndo Lifestyle With a USDA Loan

Barndominiums enable modern home life within the framework of a classic barn. The USDA mortgage program provides a fitting financing solution.

While securing a barndo loan takes some research, the opportunity is there. Connect with USDA specialists who can make your dream barndominium a reality!

USDA Property Eligibility for Barndominiums

To get a USDA home loan approved, the property needs to meet a few basic requirements. Barndominiums should:

  • Fall within a designated USDA rural area
  • Be your primary residence
  • Not be a commercial investment—farms, rental homes or other income-producing properties aren’t eligible unless they are no longer in commercial use
  • Be accessible from a paved or all-weather road surface
  • Be structurally sound
  • Have an adequate roof
  • Have fully operational heating and cooling systems
  • Have electrical systems that are fully operational and safe
  • Have suitable plumbing and water flow for waste removal
  • Use a USDA-approved contractor if being built from the ground-up

USDA Credit and Income Eligibility for Barndominiums

Like any home loan, you must meet credit and income eligibility criteria.

Fortunately, the USDA does not set a minimum credit score requirement. However, most lenders will need a score of at least 640 to approve a loan. This is the minimum score needed to qualify for automatic approval through the USDA’s Guaranteed Underwriting System (GUS).

To get approved for a USDA loan, you must prove you can repay the loan. Lenders will look closely at current expenses and debt. You must typically have no more than a 41% debt-to-income ratio, and your monthly housing expenses cannot exceed 29% of your income.

Because the program is designed to help those with low-to-moderate income, USDA loans also include income limits

These limits will vary by location and household size but are typically:

  • 1-4 member household: $110,650
  • 5-8 member household: $146,050

USDA Construction Loan Requirements 2024 Full Guide!

FAQ

How hard is it to get a loan to build a barndominium?

Difficulty obtaining USDA loan: Though far from impossible, obtaining a USDA loan for a barndominium may be challenging. Many USDA lenders are unfamiliar with these structures and may be reluctant to finance their purchase.

Why won’t banks finance barndominiums?

Marketability and Resale Value Their unique style and the fact that they’re often located in rural or semi-rural areas can limit potential buyers. This perceived risk of difficulty in selling the property, should the need arise, makes banks wary of offering loans for barndominiums.

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.

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.

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