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Why won't banks finance barndominiums?

The biggest challenge to getting a barndominium loan is that lenders require an appraisal to determine a property's value before they can approve a loan. If there are no other recent barndominiums sales in the area where you want to buy, it may be difficult to get approved for a loan.

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So you want to buy a barndominium – one of those cool barn-like structures that have been gaining popularity throughout the U.S. the past couple of years. But you’re not sure whether you can get a loan to buy one, or whether you should have one newly built instead. We’ll tell you how to finance a barndominium – and the truth about the challenges you might face along the way.

What's in this Article?

What is a barndominium?

How to finance a barndominium with a mortgage lender

USDA loan for barndominium

How to get financing to build a barndominium

Frequently asked questions

What is a barndominium?

A barndominium can either be a barn that’s been renovated into a home, or a home that’s built to look like a barn but has been designed for residential living. They’ve grown in popularity recently, as they are a unique type of home that gives the owners flexibility for customizing the floor plan and style of the property. According to The Washington Post, “barndos,” as they are often called, have sprung up across the country. But they’re most popular so far in more rural areas, according to The Post. Barndominiums are typically constructed as metal buildings, though some builders use a hybrid wood and metal method. Would-be barndo homeowners who don’t mind taking a DIY approach can also purchase kits delivered to their build site and put the homes together themselves, according to barndominiumlife.com. But, the site notes, those kits are for small houses well under 1,000 square feet. For a large, newly built barndominium, the site estimates the average barndominium cost at $220,000.

How to finance a barndominium with a mortgage lender

Because barndominiums are a relatively new phenomenon, you might have a hard time finding a traditional mortgage lender that will give you a home loan for one. It’s not that they have anything against barndominiums. Lenders want to help as many people as they can buy homes they love. But they’re constrained by a few factors, particularly the loan program guidelines. Depending what type of loan you use to buy your home, lenders must adhere to the program guidelines, so the barndominium has to be an allowed property type and meet the appraisal standards. The appraisal standards are the big hurdle, because one of the big factors appraisers use to determine a home’s value is the comparable properties in the area. They look at similar homes nearby that have sold recently to gauge the potential value of the home you want to purchase. Why does this matter? Lenders can’t approve you to borrow more than the home is worth. The appraisal tells them whether the loan amount is commensurate with the property’s value. This process can get tricky with barndominiums if there aren’t any similar properties in the area. If the appraiser has nothing to compare your home to, they won’t be able to assign a value and issue a report, and your lender can deny the loan. The comparable properties don’t have to be other barndominiums, although that helps. If there are other unique homes in the area, the appraiser may be able to use those to determine the value as well. Ultimately, the lender wants to know that it will be able to resell the home if the borrower defaults on the loan.

Who finances barndominiums?

Traditional mortgage lenders may finance barndominiums, as long as you qualify for a home loan program and the home meets the property requirements for your loan type. Lenders will look at your credit score, debt-to-income ratio (DTI)*, income, and down payment to determine whether you qualify for a loan, which loan programs are available to you, and how much you can borrow.

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Not all lenders will approve loans for a barndominium, so it’s worth talking to several different companies, including national lenders as well as credit unions and smaller local banks. But remember, the big challenge will be the appraisal. So if you’re thinking about buying a barndominium, you may want to look in areas where these homes have gained popularity, as lenders there may be more familiar with the property type and it may be easier to get an appraisal. You may also be able to find a builder that offers in-house financing for a barndominium. If you have significant savings for your down payment, and you currently own a home, you might consider taking out a home equity loan or cash-out refinance against your equity. You can use your equity and savings to purchase the new home. However, this will increase the amount you owe on your current home, so you would only want to take this option if you were not at risk of falling behind on payments on that property.

USDA loan for barndominium: Can it be done?

USDA loans are a great option for buying a home, since they offer 100% financing – which means 0% down. But can you use a USDA loan to buy a barndominium? Maybe. You can use a USDA loan to buy a single-family property, including a barndominium, if it meets the appraisal requirements. But again, if there are no comparable properties, you may have a hard time passing the appraisal. Here’s the good news, though. Barndos are most popular in rural areas, and USDA loans are designed specifically for rural and some suburban areas. So if you’re buying in a rural town or county, you may have better luck finding a barndominium with comparable properties nearby. You can use a USDA loan to buy a single-family property, including a barndominium, if it meets the appraisal requirements. If you hit a wall with using a USDA loan for a barndominium, consider looking at traditional houses in the same area. A USDA loan enables you to buy a home with little to no money upfront, since you don’t need a down payment and only need to pay closing costs. And you can use gift funds or closing cost assistance toward those. Because USDA loans are such a great deal, it’s worth weighing those advantages if you’re struggling to buy a barndo. You may be able to find a house you’re just as excited about and buy it with less stress.

How to get financing to build a barndominium

Maybe you don’t want to just buy a barndominium. You want to build one from the ground up, customized to your taste and lifestyle. Some lenders offer new construction loans, though many do not. It is possible to get a construction loan for a barndominium, but you may run into similar problems as you would buying an existing barn home. Construction loans are also much more complex than standard purchase loans, since new builds involve permits, contractors, and blueprints. There’s a lot more legwork required on your end, so it’s important to know what’s involved and whether you really want to take on that commitment.

You’ll also need to factor land into your construction plans. Do you need to purchase land on which to put the barndominium? If you already own land, is it cleared? Does it have utilities hookups, a driveway, and road access? What kind of permits will you need for the build? If you own a plot in a neighborhood, are there any restrictions on the types of construction allowed there?

Think through all of the variables before committing to building a home. When you get estimates for the total cost of building and land, you may decide you’re better off purchasing an existing home and modifying it to suit your needs.

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Barndominiums are unique – and that makes them harder to finance

Barndominiums, like tiny homes and other non-traditional houses, are cool and unique. It’s no wonder people are drawn to them. Unfortunately, their uniqueness also means there are fewer financing options, since they don’t always meet lenders’ guidelines. If you can’t find a way to finance a barndominium, however, there are lots of alternatives. There are many traditional construction homes that are charming and sturdy and which you can customize to make your own.

How to finance a barndominium FAQs

Will banks finance a barndominium? Some will, but not all. The biggest challenge to getting a barndominium loan is that lenders require an appraisal to determine a property’s value before they can approve a loan. If there are no other recent barndominiums sales in the area where you want to buy, it may be difficult to get approved for a loan. But it’s worth asking several different lenders, including credit unions and local banks. Different organizations may offer different types of financing, and if they’ve done similar loans in the past, they may be able to help make the purchase happen. How does financing work on a barndominium? If you’re financing through a traditional mortgage lender, buying a barndominium works similarly to buying any other property. You’ll need to get approved as a borrower, and the property itself will need to pass an appraisal. Barndominium appraisals can be challenging if there are no comparable properties in your area, because the appraiser needs to see comparable properties to determine the home’s value. But assuming you don’t run into appraisal issues or other property challenges, the financing process is similar to what you’d see with a traditional home. Can you use a VA loan to build a barndominium? Technically, yes – but the hurdles to doing so are steep. VA construction loans are more difficult to find than a standard VA purchase loan because not many lenders offer the VA construction option. With a barndominium, you have the added challenge of barndominium appraisals. Lenders cannot give VA loans without a sufficient appraisal report, and the appraiser needs to see three comparable properties in the area to determine the potential value of the home. So you’d need to find a lender that offers VA construction loans, and you’d need to have the barndominium built in an area with comparable properties. USDA Guaranteed Rural Housing loans subject to USDA-specific requirements and applicable state income and property limits. Fairway is not affiliated with any government agencies. These materials are not from USDA or RD and were not approved by USDA or RD or any other government agency.

*Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income.

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