25 January 2025
You may be able to use an FHA loan to finance the purchase of a pre-existing barndominium, provided it is classified as a permanent residence and meets building codes. However, navigating the FHA process for construction loans can be more complex. Although it is not impossible, you might want to explore options such as USDA loans, VA loans, or the Farm Credit System before considering the FHA for a construction loan.
Purchasing an Existing Barndominium
If you are looking to buy a pre-existing structure, an FHA loan for barndominiums is often the most accessible option. To qualify, the property must be classified as a permanent residence and meet the FHA’s Minimum Property Standards (MPS). This means the home must be structurally sound, have functioning heating and electrical systems, and be “readily marketable.”
One significant advantage of the FHA program is the low entry barrier. For a property that meets these safety and habitability guidelines, borrowers with a credit score of 580 or higher may only need a 3.5% down payment. Even with a score as low as 500, you may still qualify with a 10% down payment.
Navigating the Construction Process
Securing an FHA loan for barndominiums during the construction phase is more complex than a standard purchase. You will likely need an FHA One-Time Close Construction Loan, which combines the financing for the land, the build, and the permanent mortgage into a single closing.
Because the FHA insures these loans, they require strict adherence to building codes. You must hire a licensed general contractor, as the FHA typically does not allow “sweat equity” or DIY construction for these loans. Detailed blueprints, a comprehensive budget, and a professional appraisal based on “as-completed” value are mandatory.
Exploring Your Alternatives
While an FHA loan for barndominiums is a strong contender, it isn’t the only choice.
- USDA Loans: Excellent for barndos in rural areas, offering 0% down for eligible low-to-moderate income earners.
- VA Loans: If you are a veteran, this is often the best route due to no down payment and no monthly mortgage insurance.
- Farm Credit System: These lenders specialize in rural and agricultural properties and are often more comfortable with the unique nature of barndominium construction than big-box banks.
Ultimately, while the FHA process involves more “red tape,” it remains one of the most flexible ways to finance your dream home.
Everything you need to know about FHA loans for barndominiums
This video is relevant because it features a mortgage expert explaining the specific FHA requirements and eligibility for barndominiums and other unique home types.
Barndo Plans LLC – Barndominium Lending, Barndominium Home Financing
