A barndominium is a unique type of home that combines the functionality of a barn with the amenities of a house. These barn-style homes have become increasingly popular in recent years as an affordable and customizable housing option. However, financing a barndominium can be tricky since they don’t fit the mold of a typical single-family residence. This guide will walk you through everything you need to know about getting a loan to build or buy your dream barndo home.
What is a Barndominium?
A barndominium is a housing structure that resembles a barn from the outside but is outfitted as a house on the inside. The exterior maintains the recognizable barn features such as a gambrel roof, sliding barn doors, and metal siding or wood plank walls.
The interior is fully finished with drywall, flooring, a kitchen, bathroom(s), bedrooms, and living areas just like any conventional single-family home. Barndos can be built from the ground up as new construction, or an existing barn can be renovated into a barndominium style home.
These barn homes are especially popular among rural homeowners, farmers, and ranchers who want detached workshop/garage space combined with living quarters on their property. They provide cost-effective, durable, and flexible housing.
Home Loan for Barndominiums: Is It Possible?
Constructing or buying a barndominium is a major financial undertaking just like any other home. On average, building a new barndo from scratch can range from $100 to $300+ per square foot. An existing barn conversion may cost $50 to $250 per square foot.
For a 2,000 square foot barndominium, that equates to $200,000 to $600,000+ in total building costs. Very few homeowners have that much cash on hand. This is where a construction loan or mortgage comes into play.
But securing a home loan for an unconventional barndo can be tricky. You can’t just walk into your local bank and apply for a 30-year fixed rate mortgage like you would for a traditional house. Lenders will be hesitant since barndos don’t fit the standard property appraisal models.
The good news is that yes, it is possible to get financing for your barndominium – you just have to know where to look and how to qualify for alternative loan programs.
Can You Finance Barndominiums?
Barndominiums occupy a gray area when it comes to financing. They technically meet the criteria for a single-family residence with permanent living quarters. However, their non-traditional barn design and hybrid functionality as both dwelling and garage/workshop space poses appraisal challenges.
Some banks and credit unions won’t finance barndos at all because they don’t fit neatly into conventional mortgage lending criteria. But other lenders recognize their legitimacy and will offer construction loans or mortgages tailored to barndominium buyers.
The key is finding a lender that’s knowledgeable and willing to finance this unique property niche. Specialized farm/ranch lenders tend to be most accommodating of barndo loans. Mortgage brokers can also match you with barndo-friendly lending institutions.
Online lending platforms are expanding options for nontraditional home loans too. The barndominium financing landscape is evolving, providing more opportunities to turn your barn home dreams into reality.
How to Finance Your Barndominium (6-Step Process)
Securing financing for your barndominium build or purchase is achievable if you follow these key steps:
Steps for Getting a Loan for Your Barndominium
- Know Your Options
Research lenders like Farm Credit institutions, smaller local banks, credit unions, and specialized mortgage brokers that offer loans for barndos and other unique property types. - Check your Credit Score
Lenders will check your credit, income, and debts to qualify you. Ensure your credit score is in good shape. Pay down debts and correct any errors on your credit report. A score of 720+ gives you the best rates. - Contact a Farm Credit Loan Officer
Reach out to a loan officer at a Farm Credit office to discuss barndo loans. They’re experts on financing farms, ranches, and ag-related properties like barndominiums. - What Financial Documents Do I Need?
Gather 2+ years of tax returns, W-2s, pay stubs, credit report, property appraisal, floor plans, and a breakdown of build costs to apply. - How Does the Loan Process Work?
The lender will evaluate your application and property plans to approve your loan amount. Read all agreements carefully before signing your construction loan or mortgage. - Have Realistic Expectations About Construction Timelines
Building a custom barndo takes significant time. Factor delays into your construction loan term. Be prepared to pay extensions if build exceeds the initial timeframe.
What You Need Before Financing a Barndominium
To improve your chances of loan approval, have the following ready to demonstrate it’s a sound investment:
- Floor plans – Professionally drawn plans prove it’s a legitimate residential structure.
- Itemized budget – A detailed budget accounting for all build costs.
- Construction timeline – A realistic schedule for completion. 12-18 months is typical.
- Contractor bids – Multiple bids from licensed contractors.
- Building specifications – Details like insulation R-value, electrical amps, plumbing specifications.
- Energy efficiency report – Analysis of energy features like solar panels.
- Appraisal – Documented appraisal of the building costs and projected property value.
- Zoning approval – Proof the barndo meets local zoning and building code regulations.
Details Are Your Best Friend
Providing meticulous details about your barndominium plans shows lenders you’ve done your homework. The more ambiguities you can clarify upfront, the lower the perceived risk.
- Specify all intended uses for the structure – residence, garage, workshop, storage, etc.
- List dimensions and layouts of all interior spaces.
- Describe types of materials being used – floors, walls, roofing, etc.
- Outline energy efficiency features like spray foam insulation.
- Disclose any agricultural or commercial uses – livestock shelter, equipment storage, home office, etc.
More About Qualifying for a New Construction Loan
Since most barndos are built from the ground up, you’ll need a construction loan for financing. This will have unique qualification criteria:
Check With Current Barndominium Owners
Ask current barndo owners about their lender and loan experience. Local knowledge can point you in the right direction.
Plan and Property Appraisal
Submit detailed construction plans and specifications for appraisal, as standard property valuation models won’t directly apply. Be prepared to pay for special assessments.
Look for Comps
Help your appraiser identify comparable barndominium sales to support the property value assessment required for a loan. Documented comps strengthen your case.
Types of Loans for Barndominiums
Barndominium buyers have a few loan product options:
Construction Loans – Shorter term financing for new builds, with future conversion to permanent mortgages. Require 20%+ down payment.
Conventional Loans – Strict lending standards make these difficult for barndos. But possible if the appraisal is sufficiently supported.
USDA Loans – For low to moderate income buyers in rural locations. More flexible than conventional loans.
VA Loans – For veterans. Require certification the barndo meets VA minimum property requirements.
Farm/Ranch Loans – Offered by Farm Credit and agriculture banks, these understand barndominiums.
Owner-Builder Construction Loans – Allow buyers to self-construct their barndo over 1-3 years.
Renovation Loans – Convert an existing barn into a barndominium residence.
How Does Construction to Permanent Loan Work?
Also called a single-close loan, this combines construction financing that converts to a traditional mortgage once building completes. This avoids having to requalify and close again for permanent financing.
You work with one lender from start to finish. The construction portion covers building costs. Once the barndo is move-in ready, the loan automatically shifts to a fixed rate amortized mortgage for the remainder term, up to 30 years.
This loan simplicity makes it popular for barndominium buyers. Farm Credit institutions commonly offer construction to permanent financing.
How to Go About Financing a Barndominium
You have choices when it comes to seeking out a barndominium loan. Here are primary options:
Banks or Credit Unions
Small local banks and credit unions are worth approaching, especially if they serve rural communities. They may be more flexible than big banks with rigid institutional lending policies. Ask around locally.
Pros: Potentially more personalized service and interest in helping community members.
Cons: Limited lending experience with barndos. Lower lending limits.
Farm Credit
Farm Credit institutions were created to provide agricultural financing, so they are extremely knowledgeable about loans for farms, ranches, and anything barn-related. They offer construction, renovation and mortgage loans for qualifying borrowers.
Pros: Expertise with agricultural properties like barndominiums. Offer single-close loans.
Cons: Must meet borrower eligibility requirements related to farming/ranching.
Mortgage Banks
National mortgage banks with a strong rural presence like Chase and Wells Fargo are worth exploring. Their wider lending reach and portfolio means more potential for barndo loans.
Pros: Established lending infrastructure. Potentially offer specialized loan programs.
Cons: More restrictive lending standards. Higher denial likelihood.
Mortgage Brokers
Mortgage brokers source financing options through multiple lenders. An experienced broker can identify barndominium-friendly loan programs and match you with willing lenders.
Pros: Expert guidance on loan options. Lender connections increase approval chances.
Cons: Added broker fees. Still subject to lender requirements.
Online Loan Entities
Newer online lenders like Lightstream, SoFi, and LendingTree cater to niche and non-conventional borrowing needs. This includes unique properties like barndominiums.
Pros: Digital loan applications. Potentially more flexible borrowing amounts and eligibility.
Cons: Strict borrowing standards. Higher interest rates. Difficult to negotiate.
Can You Use a VA Loan for Financing a Barndominium?
Yes, VA loans are an option for purchasing or building a barndominium if you’re an eligible veteran or active military member. VA loans can be more flexible than conventional mortgages.
The barndominium must pass VA appraisal standards by:
- Having permanent living quarters as primary use, not just workshop space.
- Being well constructed and adhering to applicable building codes.
- Being zoned and certified for residential occupancy.
- Having functional kitchen, bathroom, and utilities.
As long as VA minimum property requirements are met, you can use your VA home loan benefit to buy or build a barndominium residence.
What Are Barndominiums?
For those unfamiliar with the term, a barndominium is a unique type of home that combines the appearance and functionality of a barn with the living space of a single-family house.
Barndominiums get their name from a portmanteau of the words “barn” and “condominium.” The exterior maintains the recognizable features of a classic barn, including:
- Gambrel or arched roofline
- Sliding barn doors
- Metal siding or wood plank walls
- Attached shed or garage space
Meanwhile, the interior is fully finished and outfitted as a luxury residential dwelling with features like:
- Drywall with painted walls and trim
- Insulation
- HVAC systems
- Electricity and indoor plumbing
- Complete kitchen and bathrooms
- Tile or hardwood flooring
- Vaulted ceilings with exposed beams
- Living room, bedrooms, and utilities
This fusion of barn and home creates a flexible and cost-effective living space, especially for agricultural property owners. Barndominiums first emerged in the 1990s but have surged in popularity over the past 5-10 years.
How do Lenders Classify Barndominiums?
Given their hybrid barn-home nature, barndominiums occupy an unusual niche in the residential lending world.
- They are considered single-family homes because they have self-contained living quarters as the primary use.
- However, their non-traditional repurposed barn design poses challenges for lenders’ underwriting, appraisal, and financing processes which are tailored to conventional stick-built houses.
- Barndos don’t neatly fit expectations for year built, construction type, comparable sales, or highest and best use factors that lenders evaluate when financing real estate.
- Appraisers may not understand how to accurately determine value.
- This can lead risk-averse lenders to deny financing altogether.
So while barndominiums technically qualify for residential loans, lenders approach them differently than traditional single-family homes.
Specialized agricultural lenders like Farm Credit institutions have the most experience financing barndominiums and similar rural properties.
What Do Lenders Look At?
When reviewing a barndominium loan application, here are key factors lenders evaluate:
Plans and Specs – Professionally drawn floorplans indicating total square footage, room dimensions, and layouts. Detailed material specifications and budget.
Construction Quality – Type of framing, roof, siding, insulation. Quality energy efficient features like spray foam insulation. This affects durability and valuation.
Contractor Reputation – Experience and credentials of the builder. Verifying licenses and certifications provides assurance.
Timeline and Budget – Realistic expected build schedule and contingency buffer. Detailed cost breakdown accounting for all materials, labor, permits, fees, and financing costs.
Property Appraisal – Primary challenge is identifying comparable sales, as barndominiums are still rare. Appraisers rely heavily on build specs, construction bids, material costs, and other factors in their valuation modeling since direct comps are limited.
Loan to Value Ratio – The loan amount compared to appraised value. A lower LTV signals lower risk for lenders. Expect to put 20% or more down.
Credit and Income – Standard credit worthiness and debt-to-income qualifications apply. Strong credit history, low debts, and consistent income improve loan odds.
Zoning and Permits – Evidence the barndo meets residential building codes and is a sanctioned use for the property. Indicates compliance with local regulations.
Uses – Plans must indicate residential occupancy is the primary use, not just workshop or storage space. Dwelling use percentage is key.
What Types of Loans are Available for Barndominiums?
The most common loan types that apply to barndominium financing are:
Construction Loans – For building a new barndo. Short term financing covers construction costs, then converts to a mortgage upon completion. Require 20% down or more.
Purchase Loans – Traditional mortgages for buying an existing barndominium. Require full appraisal.
Renovation Loans – For converting an existing barn into a barndo residence. Funds cover renovation costs to create living space.
USDA Loans – Rural Development mortgages that are more flexible for non-standard properties like barndominiums. For moderate income borrowers.
VA Loans – For veterans and military members. Require barndo to meet VA minimum property requirements for guarantees.
Farm/Ranch Loans – Offered by Farm Credit and agriculture banks, these loans cater to rural borrowers and understand barndominiums.
Single-Close Construction – Combines construction financing and permanent mortgage in one loan. Popular option for barndos.
Where to Look for a Barndo Loan
Finding a lender willing to finance your unique barndominium can take research. Here are some options:
Rocket Mortgage – This national lender offers various loan types for standard and unconventional homes, including construction loans and refinancing.
Wells Fargo – One of the largest lenders in rural areas. Wells Fargo offers customizable mortgages and construction financing that can apply to barndos.
Atlantic Bay Mortgage Group – A national lender with specialized lending programs for unique properties like barndominiums.
Local Banks – Community banks and credit unions, especially those serving rural areas, may be small enough to consider financing barndominiums case-by-case.
Farm Credit Union – The go-to experts for financing agricultural and farm-related properties. They understand barndo loans.
One-Time Close Loans for Barndominiums
Construction to permanent loans, also called single-close or all-in-one loans, are ideal financing solutions for barndominium buyers. Here’s how they work:
- The loan covers initial construction costs to build the barndo.
- Once construction is finished, the same loan converts to a permanent mortgage without having to reapply or close again.
- Streamlined financing from groundbreaking to move-in from a single lender.
- Often offered by Farm Credit institutions.
Benefits include:
- Not having to be re-qualified and pay second closing costs later. Lock in your rate.
- Build equity as your make payments during the construction loan period.
- Only need to document income/assets once for entire loan process.
- Draw funds incrementally as construction progresses.
- Often have lower rates and fees than separate construction loan + mortgage.
- Some lenders offer flexible terms allowing you to act as builder.
One-time close loans make financing a custom barndo build simple and convenient.
Barndominium Financing Options
While tricky, there are financing options to turn your barndominium dreams into reality:
- Expect to put 20-30% down payment. Have funds set aside.
- Seek out lenders familiar with financing rural/ag properties like Farm Credit.
- Work with an experienced mortgage broker to identify barndo-friendly loan programs.
- Ask local barn owners what lending sources worked for them.
- Present detailed construction plans, budget, permits, appraisal comps, etc. Remove ambiguity.
- Consider owner-builder construction loans if wanting to self-build.
- Research renovation loans if converting existing barn.
- Explore USDA or VA loans if eligible.
- Construction to permanent single-close loans simplify the overall process.
Choosing the Right Lender
Finding the ideal barndominium lender comes down to research and patience. Seek out institutions with:
- Extensive experience financing rural/farm properties.
- Flexible or specialized barndominium loan products.
- Ability to approve loans for non-standard homes.
- In-house appraisers familiar with valuing barndos.
- Local connections and interest in serving community.
- Responsive loan officers who understand barndo nuances.
- Streamlined construction to permanent financing options.
The most barndo-friendly loan experience will come from lenders who recognize their uniqueness and want to provide flexible solutions to help you achieve your dream barn home.
Conclusion
Financing a barndominium requires finding the right lender who understands the unique nature of these barn-inspired homes. While tricky, there are loan options available, especially through specialized agricultural banks and credit unions like Farm Credit. Presenting detailed construction plans and specs will help demonstrate it’s a sound investment. With proper research and persistence, you can make your barndominium dreams a reality. The ideal financing solution will depend on your budget, property, and builder. But the perfect barndo loan is out there!
