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Purchasing a Barndominium with a USDA Home Loan

Not everyone using a USDA loan needs to or wants to buy a standard house. There are many other options including condos, manufactured homes, and even barndominiums.

For those looking to make a home in a rural area, a barndominium is an increasingly popular choice. But what is it?

What is a Barndominium?

A barndominium is typically a large building made from steel containing living spaces alongside a shop or garage area.

Barndominiums can be barn-to-home conversions or built from the ground up. They're appealing to rural homebuyers thanks to their wide-open layouts, high ceilings and flexible space. They’re also popular with those who want a shop and home combination or those who work in the trades and need room to work during the day.

Can You Build or Purchase a Barndominium with a USDA Loan?

As long as the barndominium falls within a USDA-eligible area, it is possible to do a one-time close USDA construction loan in order to build and finance a barndominium.

One of the biggest challenges of building or purchasing a barndominium is getting a loan for it. Lending requirements on home loans can be strict, and barndominiums are a specialty type of residential housing that not all lenders will approve.

Conventional loan lenders that do approve barndominiums may require a large down payment or a nearly perfect credit score. However, USDA loans are a handy alternative that helps you avoid the need for all that. USDA loans don’t require a down payment and have fairly lenient eligibility criteria. And the good news is that you can get a USDA loan for a barndominium as long as you meet the income limits and property requirements.

USDA Property Eligibility for Barndominiums

To get a USDA home loan approved, the property needs to meet a few basic requirements. Barndominiums should:

  • Fall within a designated USDA rural area
  • Be your primary residence
  • Not be a commercial investment—farms, rental homes or other income-producing properties aren’t eligible unless they are no longer in commercial use
  • Be accessible from a paved or all-weather road surface
  • Be structurally sound
  • Have an adequate roof
  • Have fully operational heating and cooling systems
  • Have electrical systems that are fully operational and safe
  • Have suitable plumbing and water flow for waste removal
  • Use a USDA-approved contractor if being built from the ground-up

USDA Credit and Income Eligibility for Barndominiums

Like any home loan, you must meet credit and income eligibility criteria.

Fortunately, the USDA does not set a minimum credit score requirement. However, most lenders will need a score of at least 640 to approve a loan. This is the minimum score needed to qualify for automatic approval through the USDA’s Guaranteed Underwriting System (GUS).

To get approved for a USDA loan, you must prove you can repay the loan. Lenders will look closely at current expenses and debt. You must typically have no more than a 41% debt-to-income ratio, and your monthly housing expenses cannot exceed 29% of your income.

Because the program is designed to help those with low-to-moderate income, USDA loans also include income limits

These limits will vary by location and household size but are typically:

  • 1-4 member household: $110,650
  • 5-8 member household: $146,050

USDA Construction Loans for Barndominiums

You can either buy an existing barndominium or build a completely new one with a USDA loan.

To build a new one, you must get a USDA construction loan. This can either be a single-close loan that combines a home loan with a construction loan or interim financing with a traditional 30-year fixed USDA loan.

The best thing about a single-close loan is that there’s only one closing, which lowers your total closing costs. The lender also gets a loan note guarantee before construction begins which gives everyone more confidence.

Is a Barndominium Right for You?

Barndominiums are increasingly popular these days, but like any specialist home type, they come with pros and cons.

Pros of a barndominium

  • Cheaper and quicker to build than conventional houses
  • Require less maintenance due to the use of a durable steel frame
  • Lower insurance and taxes
  • Can be used as a home, plus a garage, workshop, warehouse or shop
  • Offer an open-concept living space
  • Unique in terms of features and character

Cons of a barndominium

  • Can be tough to find a lender who offers barndominium loans
  • Initial costs can be higher compared to buying an existing conventional home
  • Barndominiums can be harder to sell
  • Metal exteriors can be noisy

If you decide that a barndominium is right for you, get in touch with a USDA loan lender to look at your options in more detail.