When planning to build a barndominium, getting barndominium financing can be one of the most difficult steps. Because barndominiums are a relatively new phenomenon, many banks and builders don’t understand them.
Plus, finding a construction loan is always somewhat difficult no matter what you are building. However, a USDA loan for a barndominium could solve that problem.
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USDA loans are a great way for people who aren’t able to get a traditional mortgage to build their homes. These loans are fairly unknown to most people and are very underutilized. They can be a great option if you are trying to build your barndominium on a budget. By understanding how they work, you can decide if one of them will be right for your project.
What is a USDA Loan for a Barndominium?
A USDA loan is a loan that is backed by the federal government that allows you to build or buy a home. USDA loans are given to people who want to move to rural areas that are not heavily populated. This is part of an initiative to get people to live in places that are otherwise fairly empty. This makes them perfect for people who are wanting to build a barndominium.
One of the main benefits of getting a USDA loan for a barndominium is that there is often no down payment. This can be one of the biggest obstacles when looking for a loan for a home. If you are not able to save up a massive down payment, a USDA loan could be a great choice. Not only do they have a smaller up-front cost, but they are also backed by a major federal institution.
Will a USDA Loan Cover a Barndominium?
This is where it can get a little bit tricky when it comes to these loans. If you are looking to build a barndominium, you already have a few things working against you. Construction loans are difficult to come by no matter what. They can be even harder to come by if you are trying to build a less-than-traditional home.
However, that does not mean that it is impossible. Many people have built their barndominiums using USDA loans. It just means that you may have to work slightly harder and shop around more. You may also need to make sure that you are exceptionally qualified for a loan like this.
Is it Hard to Finance a Barndominium?
It used to be harder to find financing for a barndominium than it is now. When barndominiums were new on the scene, they were much more difficult to get loans for. This is because banks and builders didn’t quite understand that they were just like traditional homes. In fact, they were less of a risk due to their lower price and quicker build times.
Now that barndominiums have become more mainstream, it is easier to get financing. Banks understand that they can be a good investment and that they will be just like a regular home. That being said, it is always difficult to get a construction loan. Make sure you have all your qualifications in order and that you have a good credit score before beginning your search.
Types of USDA Loans
Guaranteed USDA Loans
A USDA loan for a barndominium will be obtained through a traditional bank. The USDA guarantees these loans and will pay a portion of them if the loan is defaulted on. This makes them less of a risk to the bank and is why they usually don’t require a down payment. Even if you do have to provide one, it will usually be much lower than a traditional mortgage would be.
One thing to keep in mind with USDA loans is that you will need to pay for mortgage insurance. This will usually be around one to two percent of the loan amount. This insurance acts as your down payment and will help keep your loan in good standing with the bank. This is especially important with a construction loan and will help you qualify more readily.
Direct USDA Loans
A direct USDA loan for a barndominium is provided by the USDA itself instead of the bank. For these loans, you will get your funding from the government agency instead of having the middle man. However, these will be much harder to get if you are getting a construction loan. It is worth trying but be prepared to have to go through a financial institution.
Direct USDA loans also are usually reserved for very low-income individuals. You must be below the low-income threshold for the area you are trying to move into. In some cases, this can be less than $17,000 per year. For the most part, building a barndominium will disqualify you from this type of loan.
USDA Home Improvement Loans
USDA home improvement loans are designated for people who want to make improvements to their homes. While these can be difficult to get for new construction, they could potentially be used for conversions. If you have a post structure already built, you could possibly use this loan to make it into a barndo.
Understanding these different types of loans can help you decide if one of them is right for you. Depending on your qualifications or circumstances, one may be better than the other. You must have all your floor plans and paperwork in order before you begin searching. This will increase your chances of getting approved and get you the best deal on your loan.
A USDA loan for a barndominium could potentially be a great option. If you want to get a project like this built but are put off by the high up-front cost, a loan like this can help. Knowing that it is backed by a government agency can give you and the bank good peace of mind. It may take some searching but if you can find the right lender, you can get your home built.
If you would like more guides like this one, be sure to check out the rest of Barndominiums.co. There, you will find all kinds of tips and tricks from the pros regarding barndominum insurance and taxes. You will also find featured barndominiums with in-depth explorations of their features. There are even available software to choose from for you to design your own floor plan. This can help you get inspired and give you ideas for your own amazing barndominium.