How to Finance a Barndominium When Traditional Loans Won’t Work

Why Financing a Barndominium Takes Creativity

Are you picturing your spacious, open-concept home with soaring ceilings, industrial vibes, and the flexibility to customize every square inch to your liking?

That’s the barndominium dream that’s captivating homebuyers across the country. 

But yes, there’s a catch that many enthusiastic barndo dreamers discover too late: financing these unique structures isn’t always easy. 

Traditional mortgage lenders often give you the side-eye when you mention “barndominium.”

They’re used to conventional properties that fit neatly into their approval boxes. 

The good news is that with some resourcefulness and planning, you can still make your barndominium vision a reality. 

Whether you’ve got substantial savings or you’re starting from scratch, I’ll walk you through strategies that real people use to finance barndominiums.

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First Things First: Can You Finance a Barndominium Without a Traditional Mortgage?

“My bank says they don’t finance barndominiums“.

A common frustration for hopeful barndominium owners. 

But don’t let that initial rejection discourage you. (It’s quite common, actually.)

Traditional mortgages might be the most obvious path to homeownership, but they’re not the only option when it comes to unique home types like barndominiums.

The key is understanding that financing your barndo might look different than financing a conventional home. 

You might need to approach it in phases rather than securing one large loan upfront. 

Terms like “non-traditional financing” and “alternative loan options” should become part of your regular vocabulary for the next few months.

Many successful barndominium owners have pieced together funding from multiple sources or used creative strategies that wouldn’t appear in a standard home buying guide.

First off, let’s consider how your current financial situation shapes your options.

For more on traditional loan options, check out our article on barndominium financing options.

Cash or No Cash | How This Affects Your Financing Options

If You Have Some Cash Reserves

Undoubtedly, having cash reserves puts you in a stronger position when financing a barndominium. Here’s how to leverage it:

• Fund key phases outright: Use your savings to purchase the land, pour the foundation, or complete the framing. These tangible assets increase your property value and can help you qualify for additional financing down the road.
• Qualify for construction-to-permanent loans: Having cash for a substantial down payment (typically 20-30%) opens doors to construction loans that convert to a mortgage once building is complete.

Pro tip: If you have significant savings, consider purchasing a barndominium shell kit upfront. This gives you a weathertight structure that can be finished over time as additional funds become available.

If You’re Starting With No Cash

Don’t count yourself out just yet if your savings account isn’t overflowing. 

After all, creative financing isn’t just for the wealthy:

• Explore specialized government-backed loans: USDA Rural Development loans offer 100% financing for eligible rural properties. If you’re a veteran, VA loans may also cover certain barndominium projects.
• Consider “sweat equity”: Some lenders give credit for the work you’ll do yourself, reducing the cash needed upfront. Owner-builder loans are specifically designed for this approach.
• Leverage existing assets: You might borrow against retirement accounts, use a HELOC on another property, or even partner with family members who see the value potential.
• Build in phases: Start small with a livable portion and expand as finances allow. This “grow as you go” approach has helped many barndominium owners achieve their dreams without going into massive debt.

How Owning The Land Can Impact Your Financing Strategy

If you already own land free and clear, you’re already one step ahead:

• Use land equity as your down payment: Many lenders will consider your paid-off land as a substantial portion of your down payment, sometimes up to 30% of the total project value.
• Improved loan approval odds: Having the land already shows commitment and reduces the total amount you need to borrow, making lenders more comfortable with your project.
• Be prepared for due diligence costs: Even with owned land, you’ll need to budget for title verification, surveys, soil tests, and zoning confirmations to make sure your plans are feasible. 

According to a 2023 survey by HomeAdvisor, land preparation costs for a barndominium can range from $1,500 to $5,000 or more, depending on terrain and access to utilities—costs any first-time builder should anticipate.

Types of Loans Commonly Used to Finance a Barndominium

Construction-to-Permanent Loans

These popular options combine two loans in one, reducing paperwork and saving a few bucks on closing costs:

• Construction phase: During building, you make interest-only payments on funds drawn
• Permanent phase: Once construction completes, the loan automatically converts to a traditional mortgage

Pro tip: These loans typically require more documentation and a solid relationship with a professional builder

FHA Construction Loans

If you need a lower down payment but good credit:

• Down payments as low as 3.5%
• More lenient credit requirements
• Be aware: FHA has strict property standards that your barndominium plans must meet

USDA Loans

Perfect for rural locations where many barndominiums are built:

• Zero down payment for qualified buyers
• Lower mortgage insurance costs than FHA
• Income limits apply based on your geographic area

Check if your area qualifies here.

VA Loans

For veterans and active military:

• No down payment required
• Competitive interest rates
• Must meet VA property requirements

Learn More About the VA Loan Program

Conventional Loans

Traditional mortgage options that might work for completed barndominiums:

• Typically require the structure to be 100% complete
• Will need comparable properties for appraisal
• Usually demand stronger credit scores (700+)

Home Equity Options

If you own other property:

• HELOCs (Home Equity Lines of Credit): Flexible borrowing against existing home equity
• Cash-out refinance: Replace your existing mortgage with a larger one and use the difference

Which Lenders Are Most Likely to Finance a Barndominium?

Not all lenders are created equal when it comes to unique or rural housing.

Your best bet is to focus your efforts on:

• Local banks and credit unions: These institutions understand regional building trends and have more flexibility in their lending policies. They’re often more willing to consider the unique aspects of barndominium projects.
• Portfolio lenders: These lenders keep loans on their own books rather than selling them to secondary markets, giving them more leeway in what they can or can’t approve.
• Rural lenders: Banks that regularly work with farm properties and rural development are more likely to understand and appreciate the barndominium concept.
• Specialized construction lenders: Some nationwide lenders have divisions dedicated to alternative construction methods and might be more receptive to your plans.

According to a report by the Rural Housing Service, local financial institutions approve alternative housing loans at nearly twice the rate of large national banks. Don’t waste time with lenders who don’t understand your vision—seek out those with barndominium experience.

Timeline of Costs: What to Expect and When

Understanding when you’ll need money throughout your barndominium building process helps create a realistic strategy:

1. Land Purchase & Prep

Before construction begins

• Costs include: Purchase price, clearing, grading, utility connections, soil tests, permits
• Typical range: $30,000-$100,000+ depending on location and acreage

2. Design, Engineering, and Plans

View This Floorplan

2-6 months before breaking ground

• Costs include: Architectural fees, structural engineering, permit drawings
• Typical range: $2,000-$15,000

Pro tip: A quality set of plans could be worth the investment—they prevent costly mistakes later [View custom barndominium floor plans here to get started on your dream design]

3. Foundation & Shell

First phase of construction

• Costs include: Concrete work, framing, roofing, exterior walls, windows, doors
• Typical range: $50,000-$150,000 depending on size and materials
• Note: This is often where traditional construction loans begin their draws

4. Interior Finish Work

Second phase of construction

• Costs include: Plumbing, electrical, HVAC, insulation, drywall, flooring, fixtures
• Typical range: $50,000-$200,000 depending on quality and customization
• Warning: This phase frequently exceeds budgets due to design changes and upgrades

5. Final Appraisal & Loan Conversion

Upon completion

• Costs include: Appraisal fees, inspection costs, title insurance, closing costs
• Typical range: $3,000-$10,000
• Pro tip: Budget an additional 5% for unexpected final expenses

Creative Financing Strategies Real People Actually Use

These aren’t theoretical ideas—these are approaches that current barndominium owners have used successfully when traditional financing didn’t get the job done:

The Shell-First Approach

Pay cash for the exterior structure, then leverage the completed shell to secure financing for interior finishing.

This works because:

• The shell represents substantial tangible value
• Lenders see reduced risk once the basic structure exists
• You can take your time finishing the interior as funds allow

The Owner-Builder Strategy

Acting as your own general contractor can save up to 30% on total costs:

• Some lenders offer specific owner-builder programs
• You’ll need to demonstrate construction knowledge or a willingness to learn
• This approach requires significant time commitment but maximizes financial resources

The Property Flip

Sell an existing property and strategically roll the equity into your barndominium:

• Timing is crucial to avoid temporary housing costs
• Consider a bridge loan if the sale and construction timelines don’t perfectly align
• This creates a clean financial slate for your new home

The Family Partnership

Multi-generational or family partnerships can make financing easier:

• Pool resources for higher down payments
• Combine credit strengths for better loan terms
• Create clear written agreements about ownership percentages and responsibilities down the line

Land Contract Leverage

If traditional financing isn’t available for your land purchase:

• Try to negotiate seller financing through a land contract
• Make payments directly to the seller while building up equity
• Use the accumulated equity as leverage for construction financing later

What to Avoid When Financing a Barndominium

Even the most prepared barndominium builders encounter challenges.

Here’s a few pitfalls to avoid common financing mistakes:

• Underestimating total costs: Always add 15% to your initial budget for contingencies. According to the National Association of Home Builders, self-managed projects typically exceed initial budgets by 18%.
• Ignoring draw schedule impacts: Construction delays can wreak havoc on loan draw schedules, potentially leaving you paying for extensions or additional interest.
• Choosing inexperienced lenders: Working with a lender unfamiliar with barndominiums often leads to stalled projects and frustrating renegotiations midway through construction.
• Failing to document everything: Keep meticulous records of all expenses, communications, and changes to protect yourself and satisfy lender requirements.

Tips for Financing a Barndominium Successfully

After talking with dozens of barndominium owners and a variety of lenders, I’ll share a few “must-do’s” to remember as you go through the process: 

• Get absolutely everything in writing: Verbal agreements about funding or timelines won’t go far when challenges arise.
• Work with barndominium specialists: From builders to appraisers to lenders, experience with this specific type of construction is a valuable asset. A specialized appraiser, for instance, will understand the true value and durability of your barndominium’s features rather than comparing it to lesser quality homes.
• Create backup plans: Have contingency funding sources on the back burner when possible. Whether that’s personal savings, family loans, or credit lines that can be tapped if needed.
• Track every expense meticulously: Most lenders require detailed accounting of how funds are spent. Plus, organized records make qualifying for additional financing easier if needed.

Before you build, make sure your barndo has long-term value. Read: Do Barndominiums Hold Their Value?

Conclusion: Creative Doesn’t Always Mean Risky

Financing a barndominium does require more creativity than purchasing a conventional home, but “creative” doesn’t have to mean “risky.” 

With meticulous planning, realistic budgeting, and the right team of professionals on your side, your barndominium dream is achievable. 

It just takes a bit more effort than filling out an online mortgage application.

The most successful barndominium owners share one thing: they thoroughly researched and planned out their project and financing options before breaking ground. 

By exploring the strategies outlined in this guide and adapting them, you’re already ahead of most with a barndo on their wish list.

Ready to take the next step in your barndominium journey?

Browse a variety of customizable barndominium floor plans to find the perfect layout for your lifestyle and budget. 

Having professionally designed plans in hand will strengthen your financing applications and help lenders visualize the value of your future home.

Have you used creative financing for your barndominium project? I’d love to hear more about how you did it. 

Share your experience in the comments below!