The dream of building your own home can be incredibly exciting and open up all kinds of ideas. Many people consider a large home-building project, but very few have the means to make it happen. That’s why building a barndominium can be such a great alternative to a traditional home. However, financing a barndominium can be difficult if you don’t know where to start.
In this ultimate guide to financing a barndominium, we have put together a complete breakdown of the process. By knowing what you can expect and how the whole thing works, you can give yourself a shot at success. Like any large project, building your own home has its own set of challenges and hurdles. If you know what to look out for, you can make financing a barndominium as easy as possible.
How Difficult is Financing a Barndominium?
One of the main challenges of building any house is getting the money to do it. Many people think about starting a home-building project, but very few see it through. This is because the process of getting the money can be hard, and not everyone will qualify. Unfortunately, financing a barndominium can be harder than financing a traditional house.
The number one reason why financing a barndominium can be so difficult is the fact that they are so unique. Not every lending institution will know how to get you the money you need. They may also want some extra security in place and will want to know that you are not a risk. Because of this, doing as much research as possible before getting started is highly recommended.
Difference Between Building and Buying When Financing a Barndominium
No matter what kind of home you are considering, there will be a big difference between building and buying. When you purchase a home that is already built, you can get a mortgage like any other home. You don’t have to worry about all the processes of getting a construction loan as you do for building. Construction loans can be much more difficult to come by and require more preparation and planning.
When you get a construction loan, you will have a fixed period of time to get the home built. After that period is over, the loan then switches over to a traditional mortgage. Before you can get approved for a construction loan, you need to have your land, contractors, and a timeline in place. This will show the lender that you are prepared and that you are not a risk when it comes to finishing the project.
How to Get Started Financing a Barndominium
The best thing you can do to get started financing a barndominium is buying a plot of land. This is one of the things that people tend to struggle with the most, but it will set your project in motion. While there are loans for a property that you can get, it is always better to buy the land outright. If this is at all possible, it will help reduce the load on your credit and make it easier when financing a barndominium.
After you have purchased a plot of land, you can then start thinking about what your options are for financing a barndominium. It is a good idea to know where you stand with your credit and your collateral. Things like this will come up, and if you are in good standing with them all, you have a better shot at getting funding. Bumping up your credit score and taking care of any open accounts will help you throughout the process.
Types of Loans for Financing a Barndominium
Before you can start financing a barndominium, you will have to choose a type of loan. There are several different loan types, and you may not be qualified for all of them. By understanding the types of loans that are available to you, you can make the right choice. With a good knowledge of the systems in place, your financing process will be fairly easy.
When choosing a loan type, it is important to know what you might be qualified for. Because of this, you might want to think about loan types before you choose your plot of land. Some types of loans will be specific to your location, so keeping this in mind will help. You may also want to gather some information and documentation on your own background for some loans.
A conventional construction loan is one of the most common types that most people get. These loans are given by a privately-owned bank and will generally have lower interest rates. However, you will have to have good to excellent credit in order to qualify for this when financing a barndominium. If you can get this kind of loan, you might be able to save a lot of money in the process.
For the most part, a conventional loan will also require a fairly large down payment. If you are getting the maximum amount of money, which is around $650,000, you should have 20 percent. In some high-cost areas, you can get a loan of up to $950,000. Of course, this will require a much larger down payment upfront.
If you haven’t yet purchased your land, it might be possible to get an FHA loan. These loans are traditional mortgages with the construction cost rolled into the final amount. They are backed by the Federal Housing Administration, which means they are incredibly secure. If you want to pay for every part of your home when financing a barndominium, it could be a good option.
FHA loans will cover the land, permits, construction, and building materials. They also require very small down payments of just 3.5 percent. This makes them ideal if you don’t have a lot of money upfront to pay for the massive down payment. However, they also have stringent requirements for qualifying, for which you need to be prepared.
A USDA loan is a great choice for people who want to live in some of the more rural areas of the country. USDA loans are backed by the United States Department of Agriculture and are designed to get people into less populated areas. If you are interested in some of the areas that are eligible for this loan, it could be a great choice. You can check the map on the USDA’s website to see what areas are available.
One of the convenient things about USDA loans is the way they are organized. You will have to get two loans: one for construction and one for the home itself. However, with a USDA loan, you can get both of these rolled into one. This means that you will pay less on closing costs and make the whole process much easier for yourself.
If you are a veteran of the armed forces, you may be eligible for a VA loan. These loans are backed by the Veterans Affairs office and will pay for a portion of your completed barndo. If you are having trouble getting approved when financing a barndominium, these could be a good choice. With the right qualifications, you can end up paying a lot less for your barndominium.
One of the things that make a VA loan an attractive option is the lack of a down payment. Many VA loans don’t require any kind of upfront payment for your loan. This means that you can get started on construction right away. Depending on whether or not a short-term loan will work for you, you might benefit from this particular type of financing.
Step-By-Step Guide to Financing a Barndominium
Estimate Your Budget
Before you get started with financing a barndominium, you should know what your budget is. This will help you get the financing you need and have a good idea of what to ask for. With the right budget in mind, you can be prepared for the interest rates you might pay and the terms you need. It will also give you a good idea of whether or not you will be qualified for the loan you need.
When estimating your budget, keep every aspect of the build in mind. Things like countertops and cabinets will play a big part in your budgeting process. You should also consider the cost of living in the state in which you will be building. This will all factor into your particular budget and how much you need when financing a barndominium.
Figure Out Your Down Payment
The down payment is one of the most difficult parts of financing a barndominium. Depending on the type of loan you are thinking of getting, the down payment might not be as big of an issue. However, if you want to go the traditional route, you will most likely have to pay a full down payment. This can be upwards of 20 percent, so it is important to be as prepared as possible.
One of the things you have to remember is that the less you pay for the down payment, the more you will pay overall. If you pay off less of the loan immediately, the interest payments will be much greater. If you can manage to get a bigger down payment paid, you can pay less overall. However, this isn’t going to be possible for everyone, so a good middle ground is a good idea.
Once you have determined your down payment when financing a barndominium, you can move on to blueprints. A professional draftsman can get you a solid, working floor plan and blueprints ready. These will be the key to your entire construction project. You and your builders will use them through the process, and they will also help you when financing a barndominium.
To get your blueprints started, you need to know what you want first and foremost. Write down a list of all your needs and the needs of your family, including the number of bedrooms and bathrooms. Then, work with a draftsman to create the perfect plans for your home. They will consider all your needs and put together the ideal design.
Choose Your Contractors
You will need to have your contractors in place and ready to go before you can start financing a barndominium. Most lenders will want to know that you already have staff on hand before they give you financing. Choosing contractors is an essential part of the process and can be difficult. However, if you know what to look for, you can get the perfect builder for your barndominium.
You should look for contractors that have good reviews from their former clients and customers. Read any online reviews you can and find out if they have portfolios you can look at. Building a home is an incredibly personal process and requires a lot of communication. Finding the right builder for your barndo is almost as important as finding the right lender for financing a barndominium.
Get Multiple Quotes
When financing a barndominium, you should get as many quotes as possible for lending. It doesn’t hurt to try out all the above loan options before you settle on one lender. Whether you qualify or not, you can narrow down your choices. Plus, you can get a good idea of what kind of terms you qualify for and what you can expect to pay long-term.
Financing a barndominium can be difficult, but it is certainly not impossible. Plus, it is well worth the extra time it takes to find the right lender and get the perfect loan. Finding something you can work with in the long run will help you build your ideal dream home. Lending is difficult no matter what kind of home you are building, so being prepared is key.
If you would like more guides like this one, check out the rest of BarndominiumLoans.com. There, you will find all kinds of tips and tricks from the pros. You will also find individual state guides that can help you finance a barndominium. With the right information, you can build your perfect dream home.