When trying to find solutions for financing your barndominium it is important to look at all your options. There are a number of different options available to you including FHA loans and traditional construction loans. However, if you are a veteran of the Armed Forces, a VA loan is one of your best choices. Knowing everything you can about a barndominium VA loan can help you choose wisely.
Long considered one of the top mortgage products, the VA loan is for eligible veterans and is available through many regional and national banks. The loans are guaranteed by the Department of Veterans Affairs and the rates available are typically much lower than traditional products.
Because the Department of Veterans Affairs guarantees the loans, they have more strict requirements than a traditional lender. Although barndominium VA loans are possible, they may not be the best option for the initial construction loan. Because of these strict rules, you’re better suited getting a traditional construction loan then refinancing using a VA loan.
In this article, we have put together everything you need to know about getting a barndominium VA loan.
Barndominiums have become an increasingly popular home choice over the past few years. These unique home structures combine the versatility and customization of a barn with the livability of a house. If you’re a veteran interested in building a barndominium to perfectly suit your needs, you may be wondering if you can use your VA home loan benefit to finance the construction. In this comprehensive guide, we’ll walk through everything you need to know about using a VA loan to build the barndominium of your dreams.
What is a Barndominium?
First, let’s cover the basics – what exactly is a barndominium? A barndominium is a residential structure that combines elements of a barn and a house. These homes are essentially barns that have been converted or built from scratch into living spaces
Barndominiums offer wide open and versatile floor plans thanks to their pole barn or post-frame construction This building method uses large poles embedded in the ground to provide structural support instead of interior load-bearing walls As a result, the interior space in a barndominium can be customized with few structural limitations.
In addition to flexibility, barndominiums are valued for their affordability. They can be built for about half the cost per square foot of a traditional house.
Can You Use a VA Loan for a Barndominium?
The short answer is yes, it is generally possible to use a VA loan to build or purchase a barndominium, provided it meets VA requirements. VA loans can only be used for primary residences, so you’ll need to live in the barndominium full-time if you want to use your loan benefit.
Additionally, the barndominium must meet VA property standards regarding safety, livability and security. This includes having:
- Adequate electricity, heating and cooling
- A permanent, well-built roof
- At least 400 sq ft of living space
- Access to clean water and proper sewage disposal
- No lead paint or other hazards
- Access from a public or private road
As long as your barndominium plans align with these requirements, you can potentially use a VA loan to finance the build.
Challenges of Using a VA Loan for Construction
While VA loans can technically be used for new construction, lenders often prefer not to offer these loans for building homes. Construction loans come with more risks and variables than loans for existing homes. As a result, many lenders shy away from them.
Veterans United, the largest VA lender, does not currently offer VA construction loans. Many other lenders follow suit.
So while you can use a VA loan for a barndominium in theory, the construction process itself usually needs to be financed separately.
How to Finance Building a Barndominium
The most common way to finance the construction of a barndominium is to take out a short-term conventional construction loan. Construction loans provide the financing needed to build a home over a 6-12 month timeframe.
Once the barndominium is built, you can then obtain permanent VA mortgage financing through a VA cash-out refinance. This allows you to pay off the construction loan and lock in a long-term VA loan with better rates and terms.
Here are the main steps if you want to go this route:
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Find land to build on and get proper zoning/permits. Look for land on an existing road with utility access.
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Work with a contractor to design barndominium plans that meet VA requirements.
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Get a construction loan to finance the build. Shop local banks and credit unions.
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Build the barndominium within 6-12 months.
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Once complete, apply for a VA cash-out refinance to pay off construction loan.
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Move into your new barndominium!
Following this process allows you to leverage the construction financing you need while still ultimately using your VA loan benefit to end up with a low VA mortgage rate and payment.
Tips for Building a Barndominium with a VA Loan
If you plan to ultimately get a VA loan, keep the following VA requirements in mind during construction:
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Choose land on an existing road, not deep rural areas. Easier for appraisals.
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Make sure to have electricity, water, sewer access on the land.
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Have proper insulation, ventilation and utilities.
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Use metal and concrete building materials that won’t rot or degrade.
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Include at least 400 sq ft of living space in the design.
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Keep to code and get proper permits/inspections.
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Work with an appraiser to best estimate the value.
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Build in an area with other barndominium comps.
By keeping VA guidelines in mind from the start, you can maximize your chances of successfully financing your barndominium with a VA cash-out refinance once construction is complete.
Benefits of Using a VA Loan for a Barndominium
Though the construction process brings some challenges, obtaining permanent VA financing for your barndominium has many perks:
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No down payment required – VA loans offer 100% financing
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Lower mortgage rates – VA loan rates are very competitive
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Lower funding fees – Only 2.3% upfront with a VA loan
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No monthly MI – No private mortgage insurance needed
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Longer terms – Can qualify for up to 30 year fixed rates
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Easy to refinance – Can lower rate/payment with IRRRLs
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Less strict credit – VA approves lower scores than conventional
By ultimately financing your barndominium with a VA loan, you get all of these advantages. That makes the extra effort worthwhile for most veteran homebuyers.
Finding a VA-Approved Barndominium Lender
If you want to build a barndominium using VA financing, it’s critical to find an experienced VA lender. Look for a lender that does VA cash-out and IRRRL refinances, since this is how you’ll get permanent VA financing after construction.
Though the process has extra steps compared to buying an existing home, hundreds of veterans have successfully built their dream barndominiums through VA cash-out refinancing. A knowledgeable lender will guide you through the process.
Be sure to also work with an appraiser familiar with barndominiums. Conventional appraisers aren’t always knowledgeable about these unique home structures.
With proper planning and financing, you can use your hard-earned VA home loan benefit to build the custom barndominium you’ve always envisioned. Use this guide to make your barndominium dreams a reality!
Barndominium VA Loan – The Basics
When you get a barndominium VA loan, the VA doesn’t actually provide loans. Instead, the VA provides guarantees for other institutions that do provide the loans. This lowers the risk for the loan provider, and thus down payments aren’t necessary, mortgage insurance isn’t necessary, and a lot of other benefits present themselves. For the VA, there are certain “items demanded” in return for their guarantee. Some of these demands are for the Veteran, items that limit “fees” are a good example, the downpayment aside, origination fees are capped, and other fees are capped or restricted.
Some of these demands are to help protect the VA loan guarantee program, and items that are related to loan qualification fall into this category. Part of what the VA wants is to ensure that this great benefit continues to be made available for those that have earned it and the best way to do that is to protect it from abuse.
For new construction loans for a barndominium, there is another level of demand and it relates to the protection of the construction loan. With items like requiring builders to provide 2 years of P & L’s, proof of credit worthiness, proof of liability insurance, there are no payments on the construction loan until it is completed. There is also a 12-month deadline to get it completed, all construction fees are on the builder, and there must be a 10-year warranty on new construction home.
These demands protect the Veteran and the VA’s guarantee program. These demands are also well beyond anything any regular bank would ever require from a builder. Though it does help, and it can be a great tool, it also drives up the final cost for the Veteran, and severely restricts the options for choosing a builder, which is important when you don’t live within 30 miles of a major city.
You as the Veteran not only have to qualify for such a loan, but your builder has to qualify as well and be willing to go along with the program, and it works for a builder to do that on your behalf. If you live close to major population centers, you may not have a problem finding a builder to go through this, but if you don’t, then it’s a task to work out.
Here is Everything you NEED to Know About VA Construction Loans!
FAQ
Does VA finance barndominiums?
How hard is it to get a loan to build a barndominium?
What property cannot be financed with a VA loan?
Can you use a VA home loan to buy land and build a house?
Can a VA construction loan build a Barndominium?
Yes, you can use a VA construction loan to build a barndominium. However, the barndominium must meet the minimum property and occupancy requirements set by the VA, along with other guidelines. A VA loan requires that the property being purchased is being used as a primary residence. How do I find VA construction loan lenders for a barndominium?
Can a VA loan buy a Barndominium?
The barndominium must meet the minimum property and occupancy requirements set by the VA, along with other guidelines. A VA loan requires that the property being purchased is being used as a primary residence. Therefore, if you are applying for a VA loan to build or buy a barndominium, you must intend to live in the home full time.
What are the VA loan requirements for a Barndominium?
The VA loan requirements for a barndominium are similar to those for a traditional home. The barndominium must meet the minimum property and occupancy requirements set by the VA, along with other guidelines. A VA loan requires that the property being purchased is being used as a primary residence.
Does a Barndominium VA loan require a down payment?
Qualifications through a bank or any other lender are the same and going this route still doesn’t require any significant cash for a down payment. Getting a barndominium VA loan means that you’re going to the VA at the point in this process in which a real house and land already exist and can be appraised.