Barndominium Financing | A Look at the Options

Ranches.

Duplexes.

Cape Cods.

Log homes.

No matter what type of custom home you're building, there is one common element between all projects that every future homeowner will need to address: how the project is getting paid for.

The simple fact is that it takes money to make a custom home happen, and there are several ways that can happen. 

For those looking at one of the new (and more unique) styles of custom homes – a barndominium – the story is the same. 

In this article, we'll look at the available options for barndominium financing, what they mean to you, and some overall tips for doing your due diligence in making the right decision for your project.

Financing a Barndomiumn

In a grand sense, a barndominium is no different than any other custom home.  While its architectural style is unique, the appearance of the structure pretty much mirrors that of a stick-built, modular, or panelized home built on an on-grade slab.

Still, there are differences of note: 

• The typical foundation in conventional construction is replaced by a monolithic slab.
• The poles take the place of a traditional footer.
• Wall girts spanning the poles replace typical 2x6 exterior stud walls.
• Metal wall and roof siding/sheathing is assumed and taken into consideration for the structural design.
• Trusses may be designed to be 4' OC for a metal roof vs 2' OC for shingles.
• Metal sheathing doesn't require house wrap.
• Pole barns don't use OSB sheathing with metal siding/sheathing.
• Insulation may be different to meet code requirements.
• Trusses allow for wider clear-spans that may be featured in a barndo.

Regardless, like any other type of construction project, a barndo's build and all that goes into it will need to be financed. 

You might be wondering how to finance a barndominium, who finances barndominiums, or even if you can finance a barndominium.

Let’s unpack all that:

In no particular order: Yes, you absolutely can finance a barndominium and it’s not dissimilar to financing a more conventional custom home project. And as far as who finances barndominium projects, there are a few options:

You (Private Financing)

This is the easiest, yet most uncommon route where you come up with the money and pay for your project out of pocket. 

As your own financier, you are in total control and there are no hoops to jump through that you would otherwise with a lender. It’s no different than if you bought a new car with cash.

Potential Issues: You, or rather how deep your wallet is. The only limit to your project is how much you're willing to spend.

Bank

The most common way to finance a barndominium is through a traditional bank loan.

For the majority of custom home builds, banks fund residential new construction projects through a phased approach.

With your project approved, you'll receive a conventional construction loan. Funds from the loan will be released in phases that coincide with project milestones. In other words, you wouldn't get one giant payout. Once the project is complete, the loan is converted into a traditional mortgage.

Potential Issues: It's worth noting that it can be harder to get loans for a barndo project. Keep in mind: barndominiums are a newer style for custom home building and your bank may have a bit more skepticism about providing its money to your project. Thus, you might be required to make a bigger down payment or undergo a more extensive review.

Appraisals can also be tough. Again, because barndos aren't as common as, say, modular homes, finding comparable properties can sometimes be a challenge.

As we're seeing, the above issues usually apply more to national banks. Regional banking institutions are a little more flexible and might even offer loan programs specific to barndominium construction if there's been enough of it in your area.

Ultimately, a bank of any size is looking for a loan they can feel confident in making for a project that fits within conventional guidelines and would have a sellable mortgage that supports the home's value.

Third-Party Lenders

This option is similar to a bank and practically the same as it is in more traditional styles of custom home construction. However, there are some notable differences. 

Typically, a 3p lender's loans follow the same model as those from a traditional bank – you’ll get a construction loan that’s converted to a mortgage at the end of the project.

But because they specialize in pole barn building financing, there may be fewer hoops because the lender understands how barndos are constructed and they know they need comps that are custom new construction on slab or crawlspace-they are not limiting comparables to other newly constructed barndos which may be more difficult to find, particularly depending on the market where one is building.

Just like evaluating a bank’s construction loans, it’s important to spend time analyzing the terms and conditions of a third-party lender’s loans. The last thing a new custom homeowner wants is to be saddled with a long-term loan that makes life harder.

Potential Issues: One of the biggest drawbacks to this financing route can be interest rates (we know, they're something all future homeowners are contending with). 

While a 3p lender might be friendly to post frame home construction projects, its interest rates might not be as friendly to your wallet.

It's also good to spend more time reviewing the terms and conditions of the loan as they can be noticeably different than a bank. For instance, a 3p might have a shorter repayment term or require an adjustable-rate mortgage.

Tips for Financing Your Barndo Project

Regardless of which barndominium financing option you choose, there are some best practices every future homeowner should make part of their due diligence phase: 

• Determine Your Finances: While it would be wonderful to have a project where money didn't matter, that's simply not a reality for the vast majority of people. It's well worth spending a few minutes evaluating your project and your wants and needs against what you can reasonably take on as a long-term expense.
• Ask All the Questions You Want: There’s no shame in doing your due diligence to make sure you’re getting a loan you can live with. Financing a barndo is a major investment and you have every right to go into that part of the project with eyes wide open.
• Documentation: Be prepared with detailed plans and estimates for the construction or renovation. Lenders will want to see that the project is viable and well-planned. If nothing else, having your paperwork in order makes for more expedient reviews.
• Comparison Shop: Since financing options can vary widely, it's important to shop around and compare offers from multiple lenders. The last thing you want is to be saddled with a mortgage for a few decades that could have been better had you done a little more homework.
• Consult Experts: Consider consulting with a mortgage broker or other experienced lender who has dealt with financing non-traditional construction projects. They can guide you to the right lenders and help navigate the financing process.
• Request References: No one knows better what it's like to go through the financing process than someone who’s been through it before. The wisdom of experience is invaluable.
  
  

Getting Your Barndo Finances in Order

As we've often pointed out, building a custom home of any sort is a once-in-a-lifetime, major investment. Getting the financials of a project wrong can be a costly mistake – and usually one that doesn't go away quickly.  By doing your homework and consulting with professionals, you'll be better equipped to tackle the financing process and ultimately, find the best fit for your project.

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