Can You Get a Loan for a Barndominium?

Barndominiums, structures blending the functionality of a barn with residential living, are gaining popularity for their unique design and versatile spaces. While securing a loan for a barndominium can present different considerations compared to a traditional stick-built house, it is generally possible to obtain financing. The process typically involves understanding specific loan products, meeting particular lender criteria, and navigating a structured application journey.

Understanding Barndominium Loan Types

Financing a barndominium usually involves specialized loan products that account for the construction phase and the unique nature of the property. One common approach is a construction loan, which is a short-term loan designed to cover building costs. These loans disburse funds in phases as construction milestones are met. Once the barndominium is complete, this construction loan typically converts into a permanent mortgage, often requiring a separate closing process.

A streamlined option is the one-time close or construction-to-permanent loan. This loan type combines both the construction financing and the permanent mortgage into a single loan, necessitating only one application and closing. During the construction phase, borrowers usually make interest-only payments, with the loan automatically converting to a traditional mortgage once the build is finished. This can simplify the financial process and reduce overall closing costs.

Beyond these construction-specific loans, government-backed options like USDA loans can be available for barndominiums located in eligible rural areas. USDA loans often feature no down payment requirements and competitive interest rates. However, properties must meet specific USDA standards, including being a primary residence and located within designated rural zones, and borrowers must meet income restrictions. VA loans are another government-backed alternative, offering competitive rates and no down payment for eligible veterans and their spouses, though they also have specific service requirements. Conventional loans, which are not government-backed, are also increasingly available for barndominiums, especially for borrowers with strong credit and substantial down payments.

Meeting Lender Requirements

Lenders assess several factors when considering a barndominium loan, focusing on both the borrower’s financial stability and the project’s viability. A strong credit score is typically a primary requirement, with conventional loans often seeking a minimum FICO score of 620, though some lenders prefer 680 or higher for construction loans. Government-backed loans like FHA may accept scores as low as 500 with a larger down payment, or 580 for a lower down payment, while USDA loans often look for a minimum of 640 for streamlined approval.

Income stability is another significant factor, with lenders requiring a two-year history of stable income. The debt-to-income (DTI) ratio, which compares monthly debt payments to gross monthly income, is scrutinized. Lenders prefer a DTI ratio of 36% or below, though some may approve higher ratios, up to 50%, especially with compensating factors like substantial savings. A lower DTI can lead to more favorable interest rates and terms.

Down payment requirements for barndominiums often ranging from 5% to 25% for conventional construction loans, though some specialized lenders may require as little as 15%. The equity in owned land can often be applied toward the down payment, reducing upfront cash. Beyond personal finances, lenders require detailed construction plans, and a comprehensive budget. Proof of land ownership or a plan to acquire the land is necessary, as is the involvement of a qualified and licensed contractor.

Navigating the Loan Application

The barndominium loan application begins after understanding loan types and preparing financial and project documentation. Initial inquiry with a lender experienced in barndominium financing is a first step to discuss eligibility and available programs. Obtaining pre-approval early in the process provides an estimate of the maximum loan amount, interest rate, and required down payment.

Once pre-approved, the formal application involves submitting a comprehensive package. This package includes personal financial documents like income statements, tax returns, and credit history, alongside project-specific details like architectural plans, a detailed budget, and a construction timeline. The lender’s underwriting department reviews the borrower’s financial capacity and the project’s feasibility and market risks. This stage also involves evaluating the qualifications of the chosen builder and ensuring the project aligns with lending guidelines.

A critical component of the application is the property appraisal, which can be more complex for barndominiums due to their unique nature and potentially limited comparable sales in an area. Appraisers evaluate the barndominium’s condition, construction quality, and features, often needing to conduct extensive research to find similar properties to establish market value. Once the underwriting and appraisal are complete and approved, the loan moves to closing, where all final documents are signed, and funds are prepared for disbursement according to the construction schedule.