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?
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.
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.
To get a USDA home loan approved, the property needs to meet a few basic requirements. Barndominiums should:
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:
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.
Barndominiums are increasingly popular these days, but like any specialist home type, they come with pros and cons.
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.