USDA Loans and Barndominiums (2024)

USDA Loans and Barndominiums (1)

By Neighbors Bank Team September 6, 2023

Inside this article

Barndominiums, often called "barndos," merge features of a traditional home with those of a barn. Many people are drawn to them for the blend of rural living with modern conveniences and versatility. Additionally, USDA home loans can be used for these types of properties, making them a more accessible option for those wanting to enjoy the best of both worlds.

Can you purchase a barndominium with a USDA loan?

Yes, USDA loans can be used to finance the purchase of an existing barndominium as long as the property and borrower meet USDA eligibility requirements.

Using a USDA Loan for a Barndominium

To qualify for USDA-backed financing, the barndominium you are looking to purchase must satisfy certain criteria. As for all USDA loan properties, the barndominium must be located in a designated rural area and meet the USDA minimum property requirements (MPRs). Some of these MPRs include the property:

  • Being structurally sound
  • Having functional heating, cooling and electrical systems
  • Having adequate roofing, windows and doors

Aside from the barndominium property itself, the prospective borrower must also meet the eligibility requirements to qualify for a USDA loan. USDA-eligible borrowers must satisfy the following criteria:

  • Is a U.S. citizen
  • Total household income is within 115% of median local household income
  • Meet their USDA lender’s financial standards

Can you build a barndominium with a USDA loan?

Yes, a USDA loan can also be used to finance the construction of a new barndominium. In this scenario, borrowers would apply for a USDA construction loan.

Using a USDA Construction Loan for a Barndominium

Opting for a USDA construction loan allows borrowers to fund the construction of a new barndominium in a USDA-eligible location. Keep in mind, the borrower and property must still satisfy the same eligibility criteria as those purchasing an existing barndominium with a USDA loan.

A significant advantage of USDA construction loans is that they are single-close mortgages. Many other construction loans require two separate lending processes: one in which the borrower receives the construction loan, followed by another where the construction loan is refinanced into a traditional mortgage.

USDA construction loans, on the other hand, transition seamlessly into a 30-year USDA mortgage. This means USDA borrowers only undergo the lending process once, allowing them to streamline their home financing process.

Pros and Cons of Barndominiums

When considering whether to finance a barndominium with a USDA loan, it's helpful to weigh the pros and cons of this unique property type:

Pros Cons
Easily meets USDA property eligibility Difficulty obtaining USDA loan
Shorter timeline Higher up-front costs
High functionality Harder to resell

The Advantages

Easily meets USDA property eligibility: Considering the typical uses and nature of barndominums, these properties are often located in rural areas by design. This makes it relatively straightforward for potential buyers to find a barndominum that satisfies the USDA’s rural property requirement.

Shorter timeline: The open-concept layout of barndominiums typically translates to quicker construction compared to traditional homes.

High functionality: Barndominiums serve a dual purpose as both a primary residence and a versatile workspace, offering flexibility in how residents utilize their property.

The Disadvantages

Difficulty obtaining USDA loan: Though far from impossible, obtaining a USDA loan for a barndominium may be challenging. Many USDA lenders are unfamiliar with these structures and may be reluctant to finance their purchase. Borrowers may also experience added difficulty when seeking a USDA construction loan to build a new barndominium, as some USDA lenders, including Neighbors Bank, do not offer this loan type.

Higher up-front cost: While barndominiums offer long-term savings through reduced maintenance costs, the initial investment required for these properties tends to be higher compared to conventional homes.

Harder to resell: The distinctive nature of barndominiums might pose challenges when reselling, as potential buyers may be limited by their specific preferences.

The Bottom Line

By understanding the intricacies of using a USDA loan for a barndominium, you can navigate the process with confidence and turn your vision of a unique and functional living space into a reality. Whether you're purchasing an existing barndominium or building a new one, the potential to leverage a USDA loan provides a pathway to achieving your rural living goals.

Talk to a Neighbors Bank Specialist today to begin your journey toward purchasing a barndominium!

Written by:

Neighbors Bank Team

USDA Loans and Barndominiums (2)

USDA Loans and Barndominiums (3)

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USDA Loans and Barndominiums (2024)


Is it hard to get a loan to build a barndominium? ›

Difficulty obtaining USDA loan: Though far from impossible, obtaining a USDA loan for a barndominium may be challenging. Many USDA lenders are unfamiliar with these structures and may be reluctant to finance their purchase.

Can you build a barndominium with an FHA loan? ›

Some of the more common loan types (FHA, VA) may not be available if you're trying to build a Barndominium. The lack of comparable sales (for the appraisal process) in the market usually prohibits the use of these types of loans. Luckily, conventional construction loans are available, as are a couple of other options.

What credit score do you need for a barndominium? ›

While criteria varies between institutions, ideal credit scores for the best barndominium loan rates start around 720+ or higher. This provides more assurance to lenders given barndos don't yet have comprehensive comparable sales data that appraisers prefer.

Why do banks hate barndominiums? ›

Barndominiums, on the other hand, cater to a niche market. Their unique style and the fact that they're often located in rural or semi-rural areas can limit potential buyers. This perceived risk of difficulty in selling the property, should the need arise, makes banks wary of offering loans for barndominiums.

How do people finance barndominiums? ›

You can apply for a traditional mortgage loan to finance your barndominium, but it's essential to meet the lender's requirements, such as credit score, income, and down payment. Your property appraisal will play a significant role in determining your loan amount.

Why can't you finance a barndominium? ›

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.

Does Fannie Mae allow barndominiums? ›

For Fannie Mae to finance a barndominium, the property must conform to the area's housing standards and be marketable as a residential property. This means it should not deviate significantly in terms of quality, condition, or materials from other residential properties in the neighborhood.

Is a barndominium considered a modular home? ›

Barndominiums are not considered modular homes, although they can incorporate prefabricated elements like steel frame kits. They are, at their core, custom-built homes that offer unparalleled flexibility in design and construction.

What credit score do you need for a construction loan? ›

FHA construction loan requirements

Credit score: At least 580, or as low as 500 if putting down at least 10 percent. Debt-to-income (DTI) ratio: No more than 43 percent (with some exceptions) Down payment: 3.5 percent with a credit score of at least 580, or at least 10 percent with a credit score between 500 and 579.

Is buying a barndominium worth it? ›

Barndominiums can make fantastic homes for a fraction of the cost of traditional homes. This makes them an especially great option for those looking to purchase: A large home for less.

Are barndominiums a good investment? ›

Strong Resale Prospects

While scarcer than traditional homes currently, barndominiums gain desirability and buyer competition in rural locales pushing values up. Their Large open Floor Plans, conversion potential and durable commercial steel construction attract future owners even if unconventional initially.

Can a VA loan be used to build a barndominium? ›

A VA loan can also be used to build or buy a barndominium. The barndominium must meet the minimum property and occupancy requirements set by the VA, along with other guidelines. Building a barndominium with a VA loan can be more difficult than buying an existing one.

Why are barndominiums hard to insure? ›

While a barndominium is very similar to a traditionally built home, insuring them can be much more difficult. There can be several reasons why insurance companies are hesitant to insure these structures. The primary reason is that these homes are non-standard construction, which means they lack historical data.

Do barndominiums stink? ›

While horse enthusiasts typically don't give it a thought, a question that pops up from the non-horse spouses is the smell factor. According to DC's Rick Vranish, “with proper building and sealing, customers don't seem to have issues with barn smells in their residence.”

What is the problem with the barndominium? ›

Without adequate insulation, these structures can become uncomfortably hot in the summer and chilly in the winter, resulting in increased heating and cooling costs. 2. High Maintenance: Barndominiums often feature metal exteriors, which can require more maintenance than traditional siding materials.

How long does it take to build a barndominium yourself? ›

All the finishing touches – drywall, paint, built-in furniture, moulding, roofing, siding, and fascia – can take 1 or 2 months, depending on the level of extravagance and detail. Minimalists will save time in this stage! All in all, most barndominiums take about 6 months to build.

Are barndominiums bad investments? ›

As such, it is more difficult to assess the resale value of a Barndominium. Unlike modular homes and trailers, Barndominiums maintain their value and are likely to increase over time. If you are purely looking for a quick resale investment, a Barndominium may not be your best option.

Is building a barndominium a good investment? ›

A barndominium is a wise investment if you plan on entering the Los Angeles real estate scene. Barndominiums are cheaper and easier to build than conventional houses, are low maintenance, and are more durable against earthquakes and fires. They are also unique and will set you apart from other real estate investors.

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