So, you have decided that it is time to build your dream home and are considering a barndominium, but you do not see too many of them built around where you live.
You know you can get a mortgage for a traditional home but what about a barndominium?
Can you get a mortgage loan for a barndominium?
The answer is yes but there will probably be some challenges along the way. With these types of homes, they are relatively new so it may be hard to find a lender that will give you a traditional mortgage, but all is not lost.
There are ways in which you can get a mortgage to finance your barndominium.
Continue to read our article to find out about getting a mortgage loan for your barndominium and what type of loan it is.
We will also cover the pros and cons of getting a mortgage loan. We will even cover what mortgage protection is and whether you need it and so much more.
Key Takeaways:
- Lenders must adhere to program guidelines so to get a mortgage loan it has to be an allowed property type.
- The biggest hurdle to getting a mortgage loan is the appraisal standards.
- It may be easier to get a mortgage loan if you build a barndominium from the ground up.
Contents
How Can You Get A Mortgage Loan For A Barndominium?
Yes, you can get a mortgage loan for a barndominium but there can be challenges to getting one.
Lenders do want to help you get a mortgage to finance your barndominium, but they are constrained by the guidelines for the loan program.
What those guidelines are will depend on the type of loan you want to use to buy your barndominium
Reasons Why Your Mortgage Loan Can Be Denied
The main reason that it can be hard to get a traditional mortgage loan is the appraisal standards.
This is what they use to determine the value of the home when comparing the to other properties in the area.
The appraiser will look at similar homes that have recently sold to help determine the potential value of the home you want to finance.
A lender cannot approve for you to borrow more money than the amount that is comparable with the value of the property.
If the appraiser does not have homes similar to your barndominium to compare to, then they will not be able to assign a value to your barndominium and give the lender the report.
As a result, the lender can then deny your mortgage loan.
The lender needs to know that if they have to resell the home if the owner defaults on the loan, they can resell it and get some of their money back.
Who Can Finance Your Barndominium?
The traditional mortgage lenders may offer you financing if the home meets property requirements for the loan type you are applying for, and the owner qualifies for a home loan program.
Since many lenders will not approve barndominium loans so you may have to talk to several lenders to find one where you can get financing.
When you apply for financing, the lender will look at your debt-to-income ratio, credit score, what type of down payment you have, and your credit score.
These will also help show what loan programs you qualify for plus how much you can borrow.
One thing that you can do to help get financing for your barndominium is to find a builder that will offer their clients in-house financing.
You could consider taking out a home equity loan if you currently own a home and have a large down payment.
The drawback to this is that you will have a larger amount than you owe on your current home when you sell it.
Types Of Mortgage Loans You Can Get Fro Your Barndominium
- USDA Loan—this can be a great option because they will offer 100% financing. This means that you will not need a down payment.
- With a USDA loan, you can finance a single-family home, but can you use it for a barndominium? The answer is yes if it meets appraisal requirements.
- Barndominiums are very popular in rural areas. This type of loan is designed especially for rural areas plus some suburban areas.
You may have better luck finding comparable properties to your barndominium in nearby areas if you are building in a rural town. This could get you the appraisal you need to secure a loan.
- Construction Loan—this is a type of loan you may be eligible for if you decide to build a barndominium from the ground up.
Unfortunately these types of loans are a little more complex than a standard loan. The reason is that with a construction loan, you have to have permits, blueprints, and contractors. On your end, there is more legwork.
Into your construction plans, you will need to figure in the cost of land if you need to purchase some.
If you own land already, you may need to have money to clear it to make it suitable to build on, and for utility hookups and road access if not available.
You also have to make sure that the plot of land you own has no restrictions on the types of construction that can happen there.
This type of loan is generally for only twelve months and just covers the actual construction. Many times, you can then get a permanent mortgage loan when the barndominium is built to cover the remaining costs. Your monthly payment will be based on the new mortgage loan and any amount that remains on your construction loan.
- VA Loan—yes you can technically but some of the steps you have to take to get financing for a barndominium can be steep. A VA construction loan is more difficult to get than a standard construction loan.
The reason is that not many of the lenders of VA loans offer construction loan options. There is again, getting an appraisal. You cannot get a VA loan without a sufficient appraisal form. With this appraisal, the appraiser needs to see three comparable properties to get the potential value.
- USDA Loan—if you qualify for this type of loan, you may be able to get a construction loan with no down payment. This type of loan is guaranteed by the USDA and is a program that has been designed to help increase the availability of housing for low-and-middle-income people.
It is considered an all-in-one construction loan, aka a construction-to-permanent loan. It covers the cost of constructing your barndominium and then converts to a mortgage loan.
The drawback to these types of loans is that they can take longer to process and there are not many lenders that offer this type of loan. These mortgage loans are only available in specific low-income and rural areas and for new and existing homes and barndominiums.
Have A Look: How to Get USDA Loan for Barndominium?
How is Mortgage Loan
This is an agreement between the mortgage lender and the borrower to finance a barndominium, or home without having the needed cash up front.
When you get a mortgage loan, the lender will give you a set amount of money. You agree to pay it back plus interest making monthly payments.
Until the mortgage loan is paid in full, the lender will have rights to your barndominium.
Can You Get A Mortgage Without Mortgage Protection?
Mortgage protection, also known as mortgage protection insurance, is a type of insurance that will pay off your mortgage loan if you should die before it is paid in full.
Yes, you can get a mortgage without it, but you need to make sure that there is some way for the loan to be paid in full if something happens to you.
If there is no mortgage protection, then your children or relatives will be responsible for the debt, or the lender will repossess it and resell it.
How to Find a Mortgage Lender?
As mentioned, it can be difficult to find a mortgage loan for a barndominium, but it can be done, especially if you apply for a construction loan.
Local banks and farm credit lends are the best bet for getting this type of loan. It helps if you are already a customer.
When you apply for this loan, make sure that you have solid plans for building your barndominium.
You should have a good credit score and actual bids from contractors and subcontractors.
What Is Needed To Apply For A New Construction Loan?
You will need to show them plans for your barndominium but do not have them drawn on paper.
Use a website to get barndominium blueprints if you cannot afford to hire an architect. You will also need a credible building timeline and a detailed material list.
The more details you can give your lender the better your chances are for being approved.
You will also need an appraisal of what your property is worth before and after the build.
Conclusion
Yes, you can get a mortgage loan for a barndominium, but it will probably not be a traditional mortgage loan.
Most lenders will approve a construction loan if you meet the criteria to build one from the ground up. It can be a complex process and take time, but it can be done.
I'm James, your barndominiums advisor. Several years ago, I had no idea what barndominiums were. Although I'd spent over 10 years in the construction industry, the first time I heard about barndominiums was when I saw my neighbor building a new-style home. That was the first barndominium I've ever seen, and I found it so fascinating that I wanted to learn more about them.
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