Can You Build a Barndominium With a VA Loan?

Eligible veterans and service members can build a barndominium using a VA loan. This financing option aims to assist those who have served in acquiring a home that meets their specific needs. This article explores how VA loans can facilitate the construction of barndominiums, detailing eligibility, property standards, and procedural steps.

Understanding VA Construction Loans

VA construction loans are a specialized financing option designed to help eligible individuals build a new home. To qualify for a VA loan, borrowers typically need to obtain a Certificate of Eligibility (COE) from the VA. Lenders also consider factors such as stable income and a good credit history, with many requiring a minimum credit score, often around 620 to 650.

These loans differ from standard mortgages because funds are disbursed in stages as construction progresses. This staged disbursement, known as a draw schedule, is tied to specific construction milestones. Inspections are conducted at each stage to ensure work meets VA and lender standards before the next draw is released.

Two common structures exist for VA construction financing: the one-time close and the two-time close loan. A one-time close loan simplifies the process by combining the construction financing and the permanent mortgage into a single loan with one closing. This eliminates the need for a second qualification and additional closing costs once construction is complete.

Conversely, a two-time close loan involves two separate closings: one for the construction loan and another to convert it into a permanent mortgage after the home is built. This structure can offer flexibility, as it allows borrowers to potentially secure a better interest rate for the permanent loan based on market conditions closer to completion. Both options require working with a lender that offers VA construction loans.

Barndominium Eligibility for VA Financing

For a barndominium to qualify for VA financing, it must adhere to Minimum Property Requirements (MPRs). These requirements ensure the property is safe, structurally sound, and suitable for residential living. A fundamental requirement is that the barndominium must be affixed to a permanent foundation.

The primary use of the property must be residential. While a barndominium may include a barn or workshop area, any non-residential space typically cannot exceed 25% of the total property use. The VA requires the borrower to occupy the home within a reasonable timeframe, generally 60 days after the loan closes.

Essential utilities are also required for VA approval, including a continuous and clean water supply, safe and sanitary sewage disposal, and functional electricity. The property must also have adequate heating and cooling systems. These systems must be capable of maintaining a habitable temperature, typically at least 50 degrees Fahrenheit, in areas with plumbing.

Safe and all-weather access to the property from a public or private street is another important MPR. If access is via a private road, it should be protected by a permanent easement or a joint maintenance agreement. The barndominium must also be free of health hazards, such as lead-based paint, wood-destroying insects, or significant structural defects.

Appraisal considerations for barndominiums are significant; the property must be valued as a residential dwelling comparable to other homes in the area. The appraiser will assess the barndominium’s marketability, considering its unique style and ensuring it complies with local building codes. If the design or structural elements, such as an overly dominant barn portion or lack of common residential features, negatively impact its marketability or residential function, it could pose a challenge for VA approval.

Navigating the VA Barndominium Construction Process

The construction process for a barndominium financed with a VA loan begins with finding a builder experienced with barndominium construction and familiar with VA loan requirements. While the VA no longer strictly requires builders to have a specific VA Builder ID, they must be licensed, insured, and capable of meeting VA property standards.

Once a builder is selected, detailed construction plans and specifications for the barndominium must be prepared. These plans, along with the builder’s contract, are submitted to the lender. The lender will then order a VA appraisal based on these proposed plans, which assesses the property’s value upon completion and ensures it meets MPRs.

During the construction phase, funds are disbursed through a draw schedule tied to completed milestones. The lender will typically conduct periodic inspections as construction progresses to verify that work aligns with approved plans and VA standards. Borrowers generally provide written approval before each draw is released to the builder.

Upon the completion of construction, a final inspection is conducted to confirm that all work is finished according to specifications and that the property is ready for occupancy. A Certificate of Occupancy (CO) must be issued by the local authority. This certificate is a prerequisite for the final loan disbursement and the conversion of a construction loan to a permanent mortgage in a two-time close scenario.

The final steps involve the loan closing. Throughout this process, clear communication with the lender and builder helps ensure a smooth progression toward moving into the completed barndominium.