Financing a Barndominium

Written By: Larry Haggerty

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If you’re building or buying a barndominium then you are likely going to consider financing during your journey. Due to the uniqueness of barndominiums and them not being considered a traditional home, finding the right financing options may be tricky.

Before you sign a loan or find alternative financing, it’s important to consider your financial situation, credit score and overall goals. A reputable lender that specializes in barndominium financing will understand the challenges of financing these types of homes.

For many, especially if you’re building your barndo, the go to option is a construction loan. This loan will provide funding for the construction of the structure and is typically a short-term loan lasting only until the construction is complete. The other option many go for is a USDA loan, which is a government-backed loan that can be used to purchase or refinance a home in a rural area.

In this article, we’ll explore the different financing options available for barndominiums, the pros and cons of each, and answer some frequently asked questions to help you make an informed decision.

Key Takeaways

  • There are several financing options available for barndominiums, including construction loans and USDA loans.
  • Each financing option has its own pros and cons, so it’s important to carefully consider your options before making a decision.
  • By understanding the different financing options available, you can make an informed decision and turn your barndominium dream into a reality.

Financing Options for Barndominiums

There are several loan options available for those who want to finance the construction or purchase of a barndominium.

Here are some of the most common options:

  1. Conventional Loans: These are traditional mortgage loans that are offered by banks and other financial institutions. Conventional loans typically require a down payment of 20% or more, and they have strict credit and income requirements. However, if you have good credit and a stable income, a conventional loan can be a good option for financing your barndominium.
  2. FHA Loans: These are government-backed loans that are designed to help people with lower credit scores and smaller down payments buy homes. FHA loans require a down payment of just 3.5%, and they have more flexible credit requirements than conventional loans. However, FHA loans also require mortgage insurance, which can add to the overall cost of the loan.
  3. VA Loans: These are loans that are available to veterans and active-duty military members. VA loans offer 100% financing, meaning you don’t need to make a down payment. They also have more flexible credit requirements than conventional loans. However, VA loans are only available to those who have served in the military.
  4. USDA Loans: These are loans that are designed to help people buy homes in rural areas. USDA loans offer 100% financing, and they have more flexible credit requirements than conventional loans. However, they are only available to those who meet certain income and location requirements.
  5. Construction Loans: If you’re building a barndominium from scratch, you may need a construction loan to finance the project. Construction loans are short-term loans that are designed to cover the cost of building a home. Once the construction is complete, the loan is typically converted into a traditional mortgage loan.

Pros and Cons of Barndominium Financing

When it comes to financing a barndominium, there are both pros and cons to consider. In this section, we’ll explore the benefits and drawbacks of financing a barndominium to help you make an informed decision.

Benefits of Financing a Barndominium

Financing a barndominium can provide a number of benefits, including:

  • Flexibility: Barndominiums are highly customizable, meaning you can design a space that meets your specific needs and preferences.
  • Lower maintenance: Barndominiums typically require less maintenance than traditional homes, which can save you time and money in the long run.
  • Lower insurance costs: Since barndominiums are made of metal, they may be less expensive to insure than traditional homes made of wood or brick.
  • Quicker construction: Barndominiums can be constructed more quickly than traditional homes, which can save you time and money on labor costs.

Drawbacks of Financing a Barndominium

While there are many benefits to financing a barndominium, there are also some drawbacks to consider, including:

  • Limited financing options: Financing a barndominium can be challenging, as many lenders are hesitant to provide loans for this type of construction project.
  • Higher interest rates: Since barndominiums are considered a higher risk investment, you may face higher interest rates on your loan.
  • Limited resale value: Barndominiums may have a smaller pool of potential buyers when it comes time to sell, as they are often highly customized to the original owner’s preferences.
  • Strict lending requirements: Lenders may require a higher credit score and larger down payment for barndominium loans, which can make it difficult for some buyers to qualify.

In addition to these pros and cons, there are many other factors to consider when financing a barndominium, including your budget, creditworthiness, and the specific lending options available to you. It’s important to do your research and work closely with a loan officer or real estate agent to ensure that you are fully prepared for the financial aspects of your barndominium construction project.

Down Payment Requirements for a Barndominium

Loans for a barndominium will operate the same as a traditional home. You will typically be required to put 20% down to secure the loan. In some cases, such as a USDA loan, you may not have to put any money down.

The requirements for an FHA loan can go down to 3% but you should expect to pay more. Due to the uniqueness of a barndominium, most lenders will want to protect their investment right off the bat so you should expect to put at least 10-20% down for your new home.

Homeowners Insurance for Barndominiums

You can insure a barndominium but you will have to make sure you have the right insurance or else you could be paying tons of money out of pocket for everything.

Before you start searching for insurance providers you’ll need to identify the type of insurance you’ll need and that comes down to the true purpose of your barndo.

If you’re only using your barndominium as a residential home then you can live with your standard homeowner’s insurance. Not all insurance carriers will insure a barndominium so you might need to shop around.

If you are using your barndominium as a dual nature structure, such a shouse, then you’ll want to make sure your insurance covers not only your dwelling but also your workshop. Your standard homeowner’s insurance will not cover your workshop or business you run out of your home.

Not all common carriers provide this type of insurance but you can try searching for “barndominium insurance” with each insurance provider to see what they offer.

Taxes for Barndominiums

Unfortunately, barndominiums are not excluded from paying taxes. Your taxes will vary by state and locale so before you build it’s best to talk to your local assessor for a true understanding of what your taxes will be.

If you have a mortgage on your barndominium you will likely have your property taxes taken right out of your payment so you don’t have to worry. If you are building your barndo with cash or purchasing it outright with cash then you’ll have to make your yearly payments.

Both commercial and residential properties have to pay taxes. Barndominiums are typically taxed as a residential property even if you have a workshop, storage or other use for the building. The standard tax rate, or millage, for most areas is $1 for every $1,000 in assessed value which comes out to around 1.1% of your home’s value. If your barndominium is valued at $200,000 then you would pay $2,200 in yearly property taxes.

Frequently Asked Questions

What are the financing options for building a barndominium in Florida?

There are several financing options available in Florida for building a barndominium. You can opt for a conventional loan, which is offered by most banks and lending institutions. Another option is to go for a construction loan, which is specifically designed for building a new home. You can also consider a USDA loan or an FHA loan, which are government-backed loans that offer low interest rates and flexible repayment terms.

How does the USDA loan program work for financing a barndominium?

The USDA loan program is a government-backed loan that is designed to help low to moderate-income families purchase a home in rural areas. To qualify for a USDA loan, you must meet certain eligibility requirements, such as having a stable income and a good credit score. The loan can be used to finance the construction of a barndominium, and it offers low interest rates and flexible repayment terms.

What are the eligibility requirements for an FHA loan for a barndominium?

To qualify for an FHA loan for a barndominium, you must have a credit score of at least 580 and a down payment of at least 3.5% of the purchase price. The property must also meet certain requirements, such as being located in a designated rural area. FHA loans are government-backed loans that offer low interest rates and flexible repayment terms.

How can I calculate the monthly payments for a barndominium loan?

You can use an online mortgage calculator to estimate your monthly payments for a barndominium loan. The calculator will take into account the loan amount, interest rate, and repayment term to give you an estimate of your monthly payments. Keep in mind that your actual monthly payments may vary depending on your credit score and other factors.

Who are the top lenders for financing a barndominium in Texas?

There are several lenders in Texas that offer financing for barndominiums, including Farm Credit Services of America, AgTexas Farm Credit Services, and Capital Farm Credit. It’s important to shop around and compare rates and terms from different lenders to find the best deal for your needs.

What are the benefits and drawbacks of using a VA loan for a barndominium?

VA loans are government-backed loans that are designed to help veterans and active-duty military members purchase a home. The benefits of using a VA loan for a barndominium include no down payment requirement, no private mortgage insurance, and competitive interest rates. However, the drawbacks include strict eligibility requirements and limits on the amount you can borrow. It’s important to weigh the pros and cons carefully before deciding if a VA loan is right for you.

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