- Solid plans
- Actual contractor or subcontractor bids and
- A good credit rating
What you need before trying to get Barndominium financingAvoid going in to see a lender with your plans just drawn on a sheet of paper. If you can’t afford an architect. there are several websites that specialize in barndominium blueprints, like Barndominiumdesigns.com. Other sites that provide designs either are just Pinterest collections with no ability to buy one you might like.. Or they are tied to a barndo construction company that usually requires that you contract with them to build your barndo turnkey. If nothing else, invest in some good home design software — a program that will render detailed 3D drawings and itemized building supply lists. There are several on Amazon, but they don’t allow you to return them if you’re dissatisfied or the learning curve proves to be too steep. This one has both a free trial and a money back guarantee. Combine its output with any visuals provided by the company erecting your shell. In any event, whether you design the plans by yourself or do so with the help of professionals, you’ll bring them — along with a detailed materials list and a credible building timeline — to your initial meeting with a lender.
Details are your best friendBasically, the more detail you have the better your chances. You’ll need items like:
- blueprints with schematics,
- interior details,
- a credible supplies list and realistic timeline, plus
- a roster of subcontractors with current bids (if you are acting as owner-builder).
- raise the confidence level of the lender about your ability to make it happen.. Or,
- convey the idea that he or she is financing a well-thought-through project
More about qualifying for a new construction loanThere is quite a bit of information available online about traditional home loans. But there is very little dealing with new construction loans — and virtually nothing specific to barndominiums. Construction loans are a bit different to begin with, and adding the extra barndo component makes it doubly hard to find reliable facts, figures and checklists.
Check with current barndominium ownersInformation from barndo owners currently living in a barndominium that they successfully financed and built is valuable and often highly specific to your particular situation. You can get a surprising amount of helpful data just by asking a question or two in a public forum such as Barndominium LifeFacebook group. If you are looking for advice on a particular topic — like financing — just visit the site and type your keywords into the search bar on the left. Forums like Barndominium Life are revolutionizing the way information is shared across the country and around the world. Do you need to check out tips like the ones found on these sites thoroughly to assure reliability? Absolutely. But this kind of open-faced sharing by real barndominium owners is saving others countless hours of formerly frustrating research and bringing dreams to life.
Plan and property appraisalYou’ll need an appraisal for any lender you approach. This is a professional third-party estimation of what your plans and your property are worth now and what they might be worth when you are done building. All appraisers should be adept at valuing your proposed building as if it already existed. They can combine that with an estimated worth of your property — whether you already own it or want to buy it as part of the overall construction loan.
Enter online real estate giant ZillowOne of the more substantial obstacles you are likely to encounter is the unavailability of “comps” — other already existing barndominiums in your geographic area, One valuable ally in your search is the online powerhouse real estate search engine Zillow. At any given time, Zillow is tracking the relative value, current sales price and past prices of barndominiums nationwide. Just visit this link, and refine your search right down to the county in which you want to build — or buy. Whether the lender accepts the Zillow numbers as credible is, however, another matter. Most lenders have their own system for finding comps and you may have to just accept what they say and try to work within the parameters of what they say they will loan.
Different kinds of loans for barndominiumsThere is a substantial difference between a construction loan and a traditional mortgage loan. Loans from banks, credit unions and even farm credit institutions are typically going to be higher than conventional mortgage loans and issued for shorter terms. Usually, that’s 15 years rather than the conventional 30-year mortgage most folks are used to. Second, funding your barndo construction will be done in two parts:
- The construction loan, usually a one-year loan for actual construction costs,and
- The permanent loan, which will pay remaining costs and set your new monthly payment based on the amount remaining on the construction loan,plus the traditional loan on the property itself.
What percent do you have to put down for a construction loan?Almost invariably, you will need to come up with a minimum of 20% of the loan value. In the case of a construction-to-permanent loan, that would include the total price of the property and construction of the house.
How does a construction to permanent loan work?This is the type of loan most lending institutions favor these days for construction projects. It is simply the conversion of a construction loan into a permanent mortgage after your contractor finishes the structure, If you are the owner-builder, the same process would apply to you. The permanent mortgage is structured in the same way with which you are probably familiar. You can either decide on a fixed rate or adjustable loan. And then agree on the mortgage term — typically either 15 or 30 years.
But I’m building a barndominium. How will that work?You are basically erecting a big metal building with an apartment inside — as well as a shop, garage, or, possibly, stables for your horses. Nevertheless, your lender will understand — with your guidance and drawings and other backup data — that what you are seeking is a loan that will allow you to pay for building of the barndo shell first, then finish-out of the interior. You would therefore settle on a fixed or adjustable interest rate — with fixed payments — and your loan would proceed just as a regular mortgage would — with one important difference. The bank would cut checks at regular intervals, allowing you to pay for construction costs as they come due.
No wait. I just want a loan for the metal buildingSome owners may want to take their time finishing out the interior of their barndo, paying as they go. This would not require an additional mortgage on the home itself. So you would simply apply for a traditional construction loan to get your barndo shell up on its massive cement slab. The lender will likely require your land as collateral at the very least since technically there’s no traditional home to serve this function. So, they may require extra collateral in some other form — stocks, bonds, valuable stamp collections. It will be between you and the lender to settle on these details.
How to Finance Your Barndominium
Banks or Credit UnionsThese have traditionally been the places in the past from whom you would obtain financing. You probably won’t have much luck here. Unless you already have a relationship in place with a loan officer at your friendly hometown or neighborhood bank. Sadly, there are fewer and fewer of these family-owned or closely held banks in the country. These are the places where your handshake on a deal used to be all it took to get a loan. Still, these small banks — if they’re well-established in the small town near your country property — can be good candidates for a well-prepared presentation.
Farm CreditThe same can be said of these long-standing friends of the American farming lifestyle. There will almost certainly be a Farm Credit Bureau or a similarly-named financial institution in your county. Make it a point to give them at least a part of your banking business, so when you get ready to ask for a construction loan, they will already know you and your credit-worthiness.
Mortgage banksThese are banks that originate and service mortgage loans. When the loan closes, it sells the mortgage to a secondary mortgage holder.
Mortgage brokersThese individuals sell loan products from a variety of lending institutions. They can be a good resource, particularly if they specialize in barndominium mortgages (sorry, we couldn’t find one to recommend).
Online Loan EntitiesA whole sub-industry has popped up over the last few years. They offer financial products like mortgage loans to a wide area geographically. Typically, they are affiliated with a large national or international bank.
Can You Use a VA Loan for Barndominium Construction?We did our research and discovered that it is possible to the use a VA Loan to finance the construction of a new barndominium. That said, we don’t recommend it for a few reasons. First, contrary to popular belief, VA loans are issued by regional and national banks, not the Department of Veterans Affairs. Where the VA comes in is by guaranteeing the loans. Because these loans are guaranteed, banks are able to offer more money at lower rates than traditional mortgage products. Because of these guarantees, the VA has many more requirements for new lenders, especially if it’s new construction. If you’re interested in the nuance of these requirements, we wrote an article about using the VA Loan for Barndominiums. The summary of the article is that it’ll be cheaper and easier to find traditional financing for a new barndo construction. Then, after it’s built, you can use the VA loan to refinance your new build and get a lower interest rate.
Recommendation from FacebookHowever, some barndo owners in the Facebook group said they received financing through a national lender called New Century Bank and were quite pleased. We can make no guarantee of their services or financial products. But since there are few other options, we thought we’d pass their information on. For what it’s worth, they currently have a 5-star rating from prestigious Bankrate.com.
Here is a statement from their website:
“If you label your project a barndominium, shed-home, house or barn-home, New Century Bank is interested in sharing with you our expertise on what mortgage products apply to your situation. You might be surprised. It is not that difficult. Our friendship with the Post Frame manufacturing industry is broad and we try to accommodate more project styles than any other lender. We encourage you to bring us your ideas.”We’re not sure if “post frame” also applies to metal buildings, but we’ll try to find out. You can find them online here:
- And here’s their toll-free number: 888-235-7976.