Building a barndominium—a stylish blend of barn and home—has become one of the biggest housing trends of the decade. With their mix of durability, open layouts, and rustic-modern appeal, barndominiums are popping up everywhere from rural ranches to suburban lots. However, while their construction costs can be lower than those of traditional homes, financing a barndominium can be a different kind of challenge.
Unlike conventional houses, barndominiums often don’t fit neatly into standard mortgage categories, especially if you’re building from scratch or using a metal structure. Lenders may see them as “non-traditional” properties, which means you’ll need to understand your financing options carefully.
This guide walks you through everything you need to know about financing a barndominium—from choosing the right type of loan to improving your approval odds and understanding the steps involved.
Why Financing a Barndominium Can Be Tricky
Before exploring financing options, it’s important to understand why barndominiums sometimes face extra hurdles in the loan process. The main reason is that lenders rely heavily on comparable property values (“comps”) to assess the worth of a home. Since barndominiums are still relatively new and not as common as stick-built homes, finding comps can be difficult in some areas.
Additionally, many barndominiums start as metal buildings or pole barns—structures originally designed for agricultural or commercial use. Lenders may hesitate if they perceive the project as outside traditional residential standards. Some financing institutions may also question whether the building qualifies as a permanent residence, depending on how it’s constructed and finished.
The good news? As barndominiums gain popularity, more lenders are warming up to them—especially those experienced with rural or custom home loans.
Option 1: Construction Loans for Barndominiums
A construction loan is one of the most common ways to finance a barndominium that’s being built from the ground up. This short-term loan covers the cost of materials, labor, and land improvements during construction.
Here’s how it works: the lender releases funds in stages (called “draws”) as your builder completes specific milestones—foundation, framing, roofing, and so on. Once construction is complete, you typically convert the loan into a permanent mortgage.
Pros of a Construction Loan:
- Allows you to customize every detail of your barndominium.
- You only pay interest on the amount disbursed during construction.
- Often converted into a long-term mortgage after completion.
Cons:
- Requires detailed building plans and a licensed contractor.
- The approval process is more complex and time-consuming.
- You may need a larger down payment (usually 20–30%).
If you’re working with a company that specializes in barndominiums or metal buildings, ask if they have lender partnerships—they often do. That can simplify your financing journey.
Option 2: Barndominium Mortgage (Permanent Financing)
Once your barndominium is completed and meets residential standards, it can often qualify for a traditional mortgage. This applies especially if the home is built on a permanent foundation, includes typical residential features (kitchen, bathrooms, HVAC, etc.), and meets local building codes.
Common mortgage types include:
- Conventional Loans: Offered by banks and credit unions, these loans work best if your barndominium meets typical residential criteria. You’ll usually need at least 5–20% down.
- FHA Loans: Government-backed loans from the Federal Housing Administration. FHA loans are more flexible with credit and down payment requirements (as low as 3.5%) but your barndominium must meet HUD guidelines for permanent housing.
- VA Loans: Available to qualified veterans and active-duty military. VA loans can cover barndominiums if the property meets the VA’s construction and appraisal standards—no down payment required in many cases.
- USDA Loans: Designed for rural areas, these loans can sometimes cover barndominiums if they’re used as a primary residence and meet local codes.
With any mortgage, proper documentation—appraisals, blueprints, contractor estimates, and proof of residential amenities—is key to getting approval.
Option 3: Home Equity Loans or Lines of Credit
If you already own property (and especially if it has significant equity), a home equity loan or home equity line of credit (HELOC) can be an excellent way to finance your barndominium build.
You’re essentially borrowing against the value of your existing home or land. For example, if you own land outright, you may use it as collateral to secure financing for construction.
Benefits:
- Often easier to qualify for than a new construction loan.
- You can use funds flexibly—either for construction or finishing work.
- Interest rates are typically lower than unsecured loans.
Drawbacks:
- You’re putting your current property at risk if you default.
- Your available equity limits how much you can borrow.
If your land is already paid off, that can also count as your down payment toward a construction loan—helping you reduce upfront costs.
Option 4: Personal Loans or Alternative Financing
If your barndominium project is relatively small—like converting an existing barn or building a modest weekend retreat—you might consider personal loans, especially if traditional lenders hesitate.
While personal loans typically have higher interest rates and shorter repayment periods, they can be quicker to secure and less paperwork-heavy. Some builders also offer in-house financing or partnerships with lenders familiar with nontraditional structures.
Another option is manufacturer financing if you’re buying a pre-fabricated barndominium kit. Some suppliers partner with lenders who specialize in kit homes, making it easier to get financing tied directly to your purchase.
Option 5: Land Loans for Barndominium Sites
If you haven’t purchased land yet, you’ll likely need a land loan before building your barndominium. Land loans come in several forms:
- Raw Land Loans: For undeveloped property with no utilities or access roads. Harder to finance and often requires a larger down payment (30–50%).
- Improved Land Loans: For land with utilities and road access. Easier to finance with better terms.
- Lot Loans: For smaller parcels intended for immediate construction.
Many lenders prefer to roll your land loan into a construction loan once building begins. To strengthen your chances, bring detailed plans showing how the land will be used and developed.
Tips to Improve Your Chances of Getting Approved
Because barndominiums fall into a gray area for some lenders, preparation is key. Here’s how to make your application stand out:
- Work with Experienced Builders: Choose a licensed, reputable barndominium builder who has experience working with lenders. Their credibility helps reassure the bank.
- Provide Detailed Plans: Include blueprints, material lists, utility plans, and cost breakdowns. The more complete your project documentation, the better.
- Get an Appraisal Early: Hire a certified appraiser familiar with metal homes or rural properties. A realistic valuation helps you and your lender align expectations.
- Meet Residential Code Requirements: Ensure your design includes all features expected in a permanent home—proper insulation, HVAC, plumbing, and code-compliant foundations.
- Boost Your Credit and Savings: Strong credit scores (ideally above 680) and a healthy down payment (15–30%) increase your approval odds and improve interest rates.
Transitioning from Construction to Permanent Financing
Once your barndominium is built, you can convert your construction loan into a permanent mortgage, also known as a “construction-to-permanent” loan. This transition saves you from having to reapply or pay additional closing costs.
During the build, your payments cover interest only. Once construction is complete, the loan converts to a fixed-rate or adjustable-rate mortgage, and you begin paying down principal plus interest.
Be sure to communicate with your lender early about this transition process so you know what documentation or inspections are required.
Common Mistakes to Avoid When Financing a Barndominium
Many first-time builders underestimate the complexity of barndominium financing. Avoid these common pitfalls:
- Skipping Pre-Approval: Always secure pre-approval before starting your project to know how much you can borrow.
- Choosing Inexperienced Lenders: A lender unfamiliar with barndominiums can delay or derail your project entirely.
- Underestimating Construction Costs: Material price changes or design changes can push your budget higher than expected—build in at least a 10–15% cushion.
- Not Meeting Residential Standards: Skipping features like plumbing, insulation, or code-compliant wiring can cause your home to be ineligible for financing or insurance.
The Bottom Line: Financing Your Barndominium Is Possible
Financing a barndominium may require more planning and documentation than buying a conventional house, but it’s absolutely doable. As demand for these unique homes continues to grow, more banks and credit unions are adapting their policies to accommodate barndominiums.
Whether you’re using a construction loan, mortgage, or a combination of land and equity financing, the key is preparation. Work with an experienced builder, gather all your project details, and partner with a lender who understands the barndominium process.
When done right, financing your barndominium isn’t just about getting a loan—it’s about building a foundation for your dream home that’s affordable, durable, and uniquely yours.