How to Finance a Barndominium: Can You Get a Mortgage for These Unique Homes? Check out this article for some helpful information!
If you’ve never heard of a barndominium, it’s not a new concept. They’ve been around since 1989 when real estate developer Karl Nilsen used the terms to describe “barndos,” or barn-style buildings that capture the full essence of open concepts. Many people have these in rural areas, but they are becoming popular as an alternative to traditional houses. Barndominiums can have a steel frame, or be constructed with metal or wood.
There are many unique things about barndominiums, especially the fact that they can also be considered as a permanent residence which may qualify them for a home loan or construction loan. Barndominiums can be financed, but there are many things lenders require within different loan types that may be a bit challenging.
Is it Hard to Get Financed for a Barndominium?
Many lenders may view a barndominium as a barn that’s been renovated into a home. Some people start looking at construction loans or a renovation loan as an alternative to getting financed. It’s not unheard of to go from construction to permanent loan once the structure is finished. In most cases, a lender may steer someone to a USDA loan when looking to finance a barndominium because they are usually in rural spaces and may have a better chance of getting it through some form of farm credit.
What are the Different Types of Loans Available for Financing a Barndominium?
It may be difficult finding a mortgage lender willing to finance a barndominium. Program guidelines and financing options may differ based on program guidelines. National lenders may be a little more lenient, understanding that these types of homes exist, but in some cases, national banks may add more restrictions. When it comes to home loans under barndominium financing, local banks that specialize in building relationships may be the right way to go.
What Types of Loans are Available for Barndominiums?
There are usually four types of loans that are considered when obtaining home or construction loans. These are FHA loans, USDA loans, conventional loans, and VA loans. Here are the differences:
- FHA loans – you can qualify for this with a credit score of 580 or higher and the down payment is usually 3.5%. Mortgage Insurance is required for the life of the loan and it is regulated by a government agency.
- USDA loan – the USDA loan is often thought to be strictly for farmers, but this is not true. They are for rural areas. Farm credit lenders may be a good option for a barndominium loan because they understand the intricacies of USDA loans and can better evaluate the estimated loan needed to provide an accurate barndominium financing quote.
- Conventional loan – competitive interest rates are great in this instance due to credit score and down payment minimums. These are less restrictive and the terms to qualify aren’t that stringent. Their guidelines are set by two private agencies. In most cases, a credit score of 620 or higher is required, and a 10% minimum down payment, but it’s usually around 20%.
- VA loan- No down payments are required but all requirements must be met to qualify. Certain lenders have additional requirements and the person must show their Certificate of Eligibility (COE) to the mortgage lender. The buyer may not have to pay closing costs either. It is backed by the United States Department of Veterans Affairs.
Right now, the Federal Housing Administration doesn’t allow the use of an FHA loan for barndominium purchase. Even if it is an existing house, if there is nothing to compare it to, an FHA loan will not be an option, even though it’s a government-backed loan. Some people seek new construction loans, but you may be able to get a VA loan or USDA construction loan. Working with a local bank may be a good option, because local banks tend to look at things differently. Conventional loans may or may not be an option, but not all lenders view barndominiums as conventional houses.
If a USDA loan is an option, the loan amount and when construction begins may be a factor. Because this is also a unique type of home, the interest rates may be higher, and a larger down payment will be required. USDA construction loans have different requirements, and VA construction loans are much more stringent in these types of cases.
Buying a Barndominium That is Already Built
Believe it or not, there are barndominiums already on the market. This means you may be able to speak to some loan officers about USDA loans and other financing options that will be open to barndominium financing. This may be an option for people seeking barndominium loans. Lending requirements through credit unions may differ from most lenders, but there are always standing requirements like the appraisal process, minimum score, and other criteria that are standard on a loan application.
Under these guidelines, a USDA home loan or a conventional loan may be obtained by working with the right lender. Interest rates are a factor; credit score, debt to income ratio, the loan amount, down payment, and closing costs. A large down payment may also be required because this will not be a standard loan.
How Do Lenders Classify Barndominiums Before Financing Them?
One of the most important things to consider is how barndominiums are classified. This is a major factor in determining how banks finance this type of property. Some lenders would prefer the client to purchase land and then pursue a construction loan to become eligible for barndominium financing. When it comes to getting a VA construction loan to build a barndominium, it’s important to know that a construction loan may be more difficult to obtain because it won’t be a standard home loan.
Barndominiums in rural areas may be easier to obtain under VA loans, but it may be a case where two separate loans may be needed, especially when working with credit unions. Since this is not a traditional house, the loan products available are far and few between. If there is a construction loan, the labor costs become a factor, the estimated credit score is needed, and, of course, a down payment. Before getting approved, the down payment will be considered. Local banks may be more willing to finance a construction loan by adding barndominium financing under a USDA loan or VA loan, rather than attempting to finance traditional home loans.
Getting The Right Lender to Finance a Barndominium
Is it difficult finding out how to finance a barndominium? Absolutely. Is it unheard of? Not so much. Again, the USDA loan is one of the clear paths for financing options. When working with a USDA loan specialist to finance a barndominium, they may push you into a category where farm credit will be the prevailing factor of the loan, or structure the loan to where it will fall into construction to permanent loan status.
It is very important to have a good debt to income ratio, credit score, and the ability to pay closing costs if needed. This will help the loan application move along for approval.
Are you looking for a barndominium loan? Contact our team for more helpful tips and information on the USDA loan for barndominium options, conventional loan for barndominium options, the barndominium loan calculator and a barndominium financing quote today.