Who Finances Barndominiums and How to Get a Loan

A barndominium blends the spaciousness of a barn with the comforts of a modern condominium. These unique homes, often steel-framed, feature open floor plans, high ceilings, and combine living areas with functional spaces like workshops or garages. Their popularity has grown as a cost-effective, versatile alternative to traditional housing, particularly appealing to those seeking customizable living in rural or semi-rural settings. While financing these unconventional builds presents different considerations, it is achievable.

Unique Aspects of Barndominium Financing

Financing a barndominium differs from traditional home loans due to several characteristics. A primary challenge involves appraisal and valuation, as limited comparable sales data often exists. This scarcity of “comps” makes it difficult for appraisers to establish market value, potentially leading to lower valuations and lender hesitation. Appraisers may need to broaden search areas or use older sales data, which can extend the appraisal process.

The construction process also introduces unique considerations. Many barndominiums begin as metal shells, affecting construction loan disbursement schedules compared to traditional wood-framed homes. Lenders scrutinize permitting and zoning regulations, as barndominiums can fall into ambiguous categories between residential and agricultural or commercial zoning. This ambiguity requires clear documentation that the structure meets local building codes and residential standards. Some lenders might apply different loan-to-value (LTV) ratios or require higher interest rates or down payments due to perceived higher risk.

Who Provides Barndominium Loans

Several financial institutions may offer barndominium financing. Traditional banks, including large national and regional institutions, may provide loans, but their criteria for unconventional properties are often more stringent, making them less flexible.

Local banks and credit unions frequently represent a more favorable option. These community-focused institutions often understand local real estate markets better and may be more willing to finance unique properties. Their localized knowledge and flexibility can be advantageous. Specialized lenders or mortgage brokers also focus on unconventional or rural properties, including barndominiums, offering tailored programs and a deeper understanding of barndominium construction and valuation.

Farm Credit Associations and other agricultural lenders are viable options, especially if the barndominium is on a larger rural or agricultural property. These institutions are geared toward rural financing and may have specific loan products designed for properties blending residential and agricultural uses. They can often structure loans to fit unique needs and may offer construction-to-permanent programs.

Types of Barndominium Loans Available

Several loan products are commonly utilized for financing barndominiums, each serving different stages. Construction-to-permanent loans are popular, covering both the construction phase and seamlessly converting into a long-term mortgage upon completion. This single-close option simplifies financing by avoiding two separate loan applications and closing costs. During construction, borrowers typically make interest-only payments on funds drawn.

Alternatively, construction-only loans cover solely the building phase, requiring separate permanent financing once complete. This approach might be used when a borrower prefers to shop for mortgage rates after construction. For land acquisition before building, land loans are necessary. These loans typically feature higher down payment requirements, often around 35% of the land’s value, and shorter repayment terms. A land loan precedes construction financing.

Once a barndominium is built and meets conventional lending standards, a traditional conventional mortgage can be obtained. These loans typically require a minimum credit score of 620, a debt-to-income ratio of 43% or lower, and a two-year history of stable income.

Government-backed loans, such as USDA, FHA, and VA loans, also offer financing. USDA loans, for eligible rural areas, can offer zero down payment and competitive interest rates, often allowing a single-close construction-to-permanent process. FHA loans can be an option with down payments as low as 3.5% and more lenient credit requirements (minimum 500-580). VA loans provide eligible veterans and their spouses with competitive rates and no down payment. Personal loans are generally less ideal for full barndominium financing due to higher interest rates and shorter terms, but they might supplement smaller project components.

Preparing for Your Loan Application

Thorough preparation is crucial before initiating a barndominium loan application. Prospective borrowers should gather extensive personal financial information, including:

A strong credit score, ideally 620 or higher for conventional loans, and even 720+ for the most favorable rates. Some government-backed loans may accept lower scores like 500-580 for FHA or 640 for USDA/VA.
Income and employment verification, typically through documents like recent pay stubs, W-2s, and two years of tax returns, especially for self-employed individuals.
Documentation of assets and debts, requiring recent bank statements, investment account statements, and details on existing liabilities such as car loans, student loans, and credit card balances.
Proof of funds for the down payment, which can range from 0% for VA and USDA loans, 3.5% for FHA loans, to 5-25% or more for conventional financing.

Beyond personal financials, property-specific documentation is paramount. This includes land ownership records or a purchase agreement if the land is being acquired. Comprehensive building plans, schematics, and specifications for the barndominium design are essential for lender review. A detailed construction budget outlining all anticipated costs is also required to assess the project’s financial viability.

If a contractor is involved, their credentials, licensing, insurance, references, and a detailed construction contract must be readily available. Finally, borrowers should research local building codes and zoning ordinances, having any preliminary permit information prepared to demonstrate compliance.

The Barndominium Loan Application Process

Once all necessary information and documents are gathered, the formal barndominium loan application process can begin. The initial step involves finding a lender experienced in barndominium financing, such as local banks, credit unions, or specialized rural lenders, and comparing their offers. This comparison helps identify lenders whose programs align best with the project’s unique requirements.

Following lender selection, the complete application package is submitted. The loan then enters the underwriting phase, where the lender’s team reviews all provided documentation, including financial records and property details. During this stage, the lender typically orders an appraisal to determine the property’s value, a critical step for barndominiums due to their unique nature.

The underwriting team may request additional documentation or clarification as they assess the borrower’s eligibility and project viability. Upon successful review and a satisfactory appraisal, the loan moves from conditional to final approval. The final step is the closing process, where all legal documents are signed, and funds are disbursed according to the agreed-upon draw schedule for construction loans, allowing building to commence.