Barndominiums have been quickly gaining popularity as a unique alternative to traditional homes, and for good reasons—Barndos are spacious and highly customizable. They can also be a great investment. But, how do you get a loan? Until now, since they’re a somewhat new trend in home-buying, getting a mortgage lender to approve a loan for a barndominium has been a bit of a challenge. Some lenders might be wary because Barndos are considered unconventional builds, but there are more options available than you might think.
According to three mortgage lending experts, times are changing for the better and lenders are becoming much more inclined to approve mortgages for Barndos. Megan Yandell, of Excel Mortgage in Georgia, Jed Arnett, Amegy Bank in Houston, and Rigo Esparza of First Financial Bank in Spring, Texas share their insights to prospective Barndo owners looking for the best way to find the right financing for their distinctive homes.
Megan Yandell is the owner/broker at Excel Mortgage and has 18 years’ experience in the business. She is licensed to lend in Georgia, Texas, Florida, Kentucky and South Carolina. “I’m frustrated when I see people having trouble trying to finance this when I know it can be done,” she said. “You just need to know your options.”
First, Yandell advised, be sure to emphasize that this construction is a custom build. “Some lenders don’t know how to define a Barndo, so make sure you let them know you’re building a custom residence. The word ‘Barndo’ could imply that you’re converting a barn with animals,” she said.
“Be aware that your loan can include a land purchase and a construction loan. Lenders appreciate borrowers who have already explored finding a general contractor and have a well-designed floor plan and budget in place,” she continued. “It doesn’t have to be perfect. But, they’ll see you’re a responsible borrower and it really streamlines the process to be very well prepared as you approach the bank with your request.”
Metal is the structural element that is the central appeal of a Barndo for many, Yandell explained. From the bank’s standpoint, the issue is about comparables—or “comps” which can be challenging for steel-frame residential construction. However, that’s where properly describing your build project and presenting a thoughtful floor plan (and elevations/renders, if you have them) can be helpful. Lenders breathe easier when they can visualize the value of their investment.
Yandell said she’s able to offer Barndo borrowers options, including a one-time close on the land purchase and the construction loan, which can be converted into one long-term permanent loan that can be refinanced. “If you do those separately, you’ll have three closings (land, construction, permanent), which can get complicated,” she said. “I can help you do it all at once. You can close today and break ground tomorrow.”
Jed Arnett has been a mortgage loan originator at Amegy Bank for eight years and says he knows how to prepare borrowers to get a “yes” for their Barndo build mortgage application. “People have to go through the same qualification process as with a traditional home,” he said. “Amegy Bank is very comfortable financing Barndos and over time, we have seen our Barndo business increase. They’re clearly becoming more accepted in the real estate market.”
Arnett said that the concept of Barndo building was evolving, but many lenders still consider it a “niche product.”
“We need a borrower to demonstrate that the primary use of the Barndo is residential, not to house things like tractors or animals,” he said. “It can be a second home, but it has to be a residence, not a storage or utility building with small living quarters.”
He said that Barndos were considered “custom” construction and it was important to make sure it had market appeal. “We don’t dictate design, but we would like to make sure the Barndo is not completely out of the ordinary for the area in which it’s built,” Arnett said. “If you’re building in a subdivision with 99 traditional houses and you want the last lot for a Barndo, that might require further evaluation. We want it to fit in the area, but that doesn’t mean the other houses have to be Barndos.”
General market acceptance in the area is key. “In rural locations, Barndos are becoming more common,” Arnett explained. “We would like for you to have discussed your design with a Barndo designer or builder and have a budget in mind. It can be conceptual in the beginning. We understand that this is a process.”
Further questions focusing on the property, whether the borrower owns it, and the amount of the outstanding mortgage against that property are also critical to the process. “If you have equity in the property, that can make a difference,” he said. “We’d also like to know your anticipated construction budget. It doesn’t have to be an exact number, but we need a benchmark number.”
Although the mortgage qualification process is the same regardless of the home type, there are some differentiators when it comes to borrowing to build a Barndo. “You’d need to find out if the property is serviced by water and sewer utilities,” Arnett said. “If it’s out in the country, you might need a water well and a septic system. If that’s the case, we’d need to know if you’ve inquired about that. Also, how much road is needed from your entrance to the main road? If it’s beyond your driveway, that could add to your costs.”
Arnett said that Barndos only look different from the outside—on the inside, you can’t tell the difference between it and a traditional house. “We are all in for custom construction financing,” he said. “We have an entire department to manage custom construction, with about 600 homes under construction right now. This is a big part of our business.”
Rigo Esparza has been a vice president of mortgage lending at First Financial for 17 years, and has seen interest in building Barndos gain momentum. “The market is much more favorable these days,” he said. “We have no problem funding Barndos now that we can find a lot more comps out there.”
As with other lenders, Esparza said that First Financial stipulates that the Barndo construction be a traditional multi-bedroom and bath home on the inside, although having a shop or other business space attached is acceptable. “I always tell people to get with a builder or designer and bring almost-finalized specs, plans and drawings to us, and then we are in a better position to start financing,” he said.
Researching is critical, and the more preparation prior to approaching the bank, the better. “I would advise anyone to consult with someone like Stacee Lynn who specializes in Barndos before they do anything else,” he said.
Esparza said that it’s important to remember that Barndos, as with any custom home, could be a pricier project than a traditional build, with a higher down payment and closing costs. “Some customers could invest more than usual, then be hurt later when doing the appraisal,” he said. “Everything is about comparable sales. If you add too many ‘unusual’ features, it makes it more difficult to find comparables that have those same unique elements in their houses in the same area.”
The popularity of the Barndo is growing and they are retaining their value and selling competitively. This means that there are more comparable homes on the market to justify list prices. Consulting with different lenders, weighing options, and discussing a design plan with an expert can get you on the right track toward financing your build and seeing your vision become reality.