Barndominium Financing: Everything You Need to Know

Last updated on April 24th, 2024 at 03:37 am

Barndominiums have gained popularity in recent years, in large part due to rising home values, changing needs and preferences, and the increasing number of remote workers expanding into more rural settings.

However, some buyers are reluctant to even begin this type of project due to uncertainty about barndominium financing. This brings us to the first important question…

Fortunately, the answer is yes! However, there are many misconceptions surrounding the issue. In 2024, an increasing number of lenders will finance a barndominium just like any other real estate transaction.

We’ll explore the options for barndominium financing with traditional loan methods as well as popular alternative financing options.

Further down we’ll review the challenges that come with appraising barndominiums and cover basic lending guidelines for similarly unique homes.

• Barndominiums can be financed with commonly known loan types including conventional, USDA, or FHA, much like any other real estate transaction.

• Alternative financing is a popular option for barndominiums, as these home styles are still considered “uncharted territory” for many US lenders.

• Obtaining an accurate appraisal can be challenging for unique property types like this. However, this is becoming less of an issue as more barndos are being built and sold.

• Barndominiums come with certain advantages and disadvantages that potential buyers should consider before beginning a purchase or building project.

While barndominiums can be more challenging to finance, conventional loans can be used to purchase or refinance these home types. Fannie Mae and Freddie Mac (the entities who establish conventional loan guidelines), do allow borrowers to obtain traditional mortgage loans for barndominiums.

Freddie Mac specifically mentions barndominiums and other unique home types in its guidelines, stating that mortgages secured by non-traditional types of properties, such as barndominiums, are eligible.

On the other hand, Fannie Mae does not specifically mention barndominiums but states that “unique homes” are eligible if the appraiser can establish a reliable opinion of market value.

An increasing number of lenders are now making conventional loans available for these homes as they become more popular and accepted. 

That said, finding a lender who’s willing to work with barndominiums does not automatically guarantee approved financing, especially if the home is located in an area with few similar properties, or “comps”.

One primary hurdle when applying for a conventional loan on a barndominium is the appraisal. Lenders always want assurance that the home is marketable to the area and worth the amount of the loan, at a minimum.

This can be difficult for the appraiser to prove when there are few similar properties to base their estimate of value on.

Once the lender can obtain an acceptable appraisal on a barndominium, the rest of the loan application and underwriting process is similar to that of a traditional home.

• Minimum credit score of 620
• Debt-to-income ratio of 43% or lower
• Two-year history of stable and predictable income
• Maximum loan amount within conforming loan limits (around $750,000 for most areas in 2024)

The key is to find a knowledgeable lender who has experience with barndominium loans. If you can manage that part, the rest of the process will go much more smoothly!

Pro tip: Farm credit lenders and local banks are more likely to grant a new construction loan for a barndominium if you have a decent credit rating and solid plans in place.

Conventional loans are a viable option for financing a barndominium. However, there are other financing options to consider…

If you live in an eligible area (commonly for more rural areas), a USDA loan can potentially finance your barndominium.

Here’s what you need to know:

To qualify, your barndominium must meet USDA’s property standards and be located in a designated rural area.

Check if your area qualifies here.

You must be a U.S. citizen with a household income within 115% of the local median.

The property must meet USDA’s minimum property requirements (MPRs). These include sound structural integrity, functional heating, cooling, and electrical systems, roofing with a remaining life of at least 2 years, adequate windows and doors, adherence to local safety codes, etc.

Considering building from scratch? USDA construction loans can also simplify this process, transitioning easily into a 30-year mortgage.

If your area qualifies for a USDA loan, rural living in your dream barndominium is a definite possibility!

FHA loans are also a viable financing option for folks wanting to build or convert a barndominium into their main residence.

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This is what HUD has to say about unique property types:

“Sometimes a unique property, such as a log home, extra small home, lower than normal ceiling heights, etc., is submitted for FHA insuring.

The eligibility of these properties depends on whether or not the property is structurally sound and readily marketable.

If a property meets these criteria, the appraiser will establish a market value. However, depending on the uniqueness of a property, the final determination to accept or reject the house is made by the lending institution’s underwriter.“

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Their description sounds a bit vague if you ask me, but this snippet doesn’t, in any way, disqualify barndominiums for FHA financing.

• Proof of financial stability and ability to repay the loan
• Good credit history with a minimum credit score requirement
• Proof of employment and/or a stable source of income
• Compliance with debt-to-income ratio requirements
• Residency and legal status in the United States

For FHA barndominium construction, the involvement of professional contractors is a mandatory requirement. Unlike other construction projects where DIY’ers may decide to build their own homes or enlist the help of family members, FHA loans require the use of licensed contractors to make sure the construction process meets FHA’s safety standards and regulations.

With an FHA loan for a barndominium, the borrower must intend to occupy the property as their primary residence.

This means that the barndominium cannot be used for investment purposes or as a vacation home. 

An FHA construction-to-permanent loan covers buying land and costs to build the home.

Once your home construction has finished, your lender converts this construction loan to a permanent loan. You’ll pay this permanent loan off like you’d pay off any mortgage loan: making monthly payments, with interest, until you pay off the loan’s principal balance.

Many people building this increasingly popular type of home use alternative financing options as US lenders are still coming around to lending on this type of dwelling.  

Luckily, there are plenty of alternative financing options for barndo construction. Inquire with your local lender to discuss some of the options discussed below. 

Obtaining a personal loan is one option that will be available to most buyers, especially if you have good credit, steady income, low debt, and an estimated project cost under $100,000. 

Another financing approach is to divide the construction into phases, starting with the first essential tasks being covered by a personal loan and then using other means to complete the project gradually. 

Lenders in states all across the US offer construction-to-permanent home loans or hard money construction loans as an alternative to conventional financing.

In the rural areas of upstate NY, where I’ve seen barndominiums trending significantly in the last few years, the most common way to go about this project is to use a home equity or personal loan to begin the project, then refinance once a portion of the work is done as a means to get more money out for its completion.

You may have to shop around for lenders to work with. Depending on your situation, many lenders will have creative ways to get the job to completion. 

Having connections in the home building industry for various components of construction will give you a leg up on getting the home as close to completion as possible at a lower upfront cost. 

If you can accomplish this, your lender can request an as-is appraisal on the home and use any additional equity for funding the rest of the project.

Additional alternative financing options include home equity loans, home equity lines of credit, cash-out refinancing, and personal lines of credit. 

Home equity loans involve borrowing against your home’s equity with a fixed APR, and allow flexible borrowing from a set amount. 

Cash-out refinancing involves obtaining a new mortgage for more than your home’s value, with excess funds used for construction. This can be your barndominium or any other real estate you currently own. 

Personal loans assess credit score and debt-to-income ratio to determine borrowing limits, offering quick online processing and funding. 

Personal lines of credit function similarly to personal loans but offer flexibility in borrowing amounts. When construction loans don’t work out, most lenders are open to these alternative financing options to get your project started.

Barndominiums can be challenging to appraise due to their unique features and the limited availability of comparable properties.

Appraisers rely on comparable property sales to estimate a home’s value – but this can be difficult for barndominiums when home sales are sparse and newer style trends are just emerging with no proven sales record.

In my experience, the appraiser will often have to extend their search for comparable properties to a broader area than home valuations for most residential locations.

If recent barndominium sales cannot be found, the appraiser will use other homes of similar age, size, and quality, or include older sales for additional support.

That said, if you live in a rural area, as many barndominium buyers do, the appraisal will often include a broader area to begin with since sales tend to be more sparse. 

Homes in rural areas also tend to include a greater amount of acreage, which can further extend the search area to find similar sales.

This isn’t uncommon for more sparsely populated areas and shouldn’t raise any red flags to lenders familiar with rural lending. 

The appraisal process may require additional research in comparison to traditional homes. However, if an appraiser can come up with a supportable value and make a case that there’s a local market for barndos, the property will be more likely for approval with traditional loan types.

As this home style becomes increasingly popular, more and more appraisers and lenders are becoming familiar with barndominiums. 

Related: 10 Real Estate Appraisal Myths, Debunked

If you’re struggling to find a financing solution, there may be hope in the near future as barndominiums gain more recognition and acceptance in the real estate market.

Most barndominiums feature a metal frame and exterior, although wood is also used in some areas. Barndos typically have an open-concept design, with no interior load-bearing walls, allowing owners to have flexibility when planning and altering their home’s layout.

Barndominiums come in all shapes and sizes, ranging from one-bedroom homes to massive structures with a half-dozen bedrooms and mansion-like features.

BROWSE LAYOUTS BY DESIGN, SIZE, BEDROOM COUNT, ETC.

Many barndominiums feature large attached garages or workshop spaces.

These types of homes are often cheaper to construct than traditional homes, with their post frame construction, making them an appealing option during times of low inventory and inflated prices.

(2023-24, anyone?)

Barndominiums offer several advantages over traditionally built homes. They are often cheaper, especially when looking at properties with numerous bedrooms or ample square footage.

The metal used in the construction of most barndominiums is more durable and weather-resistant than traditional homebuilding materials. This results in less upkeep and repairs to the building’s frame and exterior than with a standard home.

One of the biggest advantages of a barndominium is the flexibility it provides. Because the interior begins as an open space, it can be customized however the owner wants.

Photo Courtesy of Architectural Designs

In most cases, renovating an existing barndominium is simpler as interior walls aren’t designed to be load-bearing. This flexibility also extends to the barndominium floor plans, with a wide range of options available to suit different needs.

Barndos can also be more energy efficient than traditional homes. While efficiency can vary from property to property based on how well the structure is insulated, metal buildings generally maintain their heating and cooling better than homes built with standard construction materials. This can lead to significant savings on energy bills over time.

Overall, the advantages of a barndominium make it a compelling option for anyone looking for a unique and flexible living space.

With alternative financing options available for barndominiums, it’s becoming easier to make this type of dream home a reality.

Barndominiums have some drawbacks that potential buyers should consider before making a purchase. Here are some of the disadvantages:

• Limited resale market: While barndominiums are growing in popularity, they are still a unique type of residence that may not appeal to everyone. The layout of many barndos emphasizes garage and outdoor spaces, which may not be suitable for some buyers. As a result, finding a buyer when it’s time to sell the property can be more challenging than with traditional homes.

• Restrictive zoning regulations: Barndominiums are not permitted in all areas due to local zoning restrictions and building codes. They are more commonly found in rural areas than in urban centers, which may limit a buyer’s options for location.

• Potential noise issues: A barndo’s metal exterior can amplify external noises, such as wind and rain, which may be disruptive to some residents. Although quality insulation can help reduce noise, it may not be as effective as in traditional homes.

• Financing challenges: Not all lenders offer financing for barndominiums. As a relatively new type of home, they are considered unique properties by lending guidelines. While obtaining financing for barndominium purchases and refinances is becoming easier as they grow in popularity, it can still be more challenging than with traditional homes.

It is important to consider these factors when deciding whether a barndominium is the right choice.

Despite the drawbacks, many people find that the unique features and cost-efficiency make barndominiums a desirable option for their dream home.

Barndominiums offer a unique and potentially more affordable housing solution for those looking to blend rustic charm with modern comforts and efficiency. 

While financing options for these properties may at first seem limited, there are several avenues available to prospective buyers or home builders. 

From traditional mortgages and personal loans to government-backed programs and construction loans, there is a financing option out there for any type of buyer to explore.

Disclaimer: Our articles are written by a Licensed or Certified Residential Appraiser. This information is meant for educational or informational purposes only, and does not support or indicate an opinion of value for your home or property, nor does it provide any type of value indication for a lender, attorney, realtor, or any other individual or entity.

• Boss Hogg Barndominiums
• 1845 Barndominiums
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• Fingerlakes Construction
• Worldwide Steel Buildings
• The Barndo Co.

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Barndominium Blogs to follow:

• Buildmax for lots of great info. on buliding techniques and floorplan walk-throughs.
• The Barndominium Company Blog for decor inspiration, photos, and living the “barndo” life.
• Barndominium Plans for guides on how to build, and an extensive database of plans to explore.

Tell me about your own experience with barndominium financing in the comments!