The American dream is inextricably linked to home ownership, which means that various types of home loans are a fact of life for many of us. If you’re considering building a custom barndominium instead of buying a traditional home, sooner or later the question of how to finance a barndominium in Sioux City will inevitably arise. Let’s take a closer look, shall we?
Construction Experience and Advice That’s On the Money.
Types of Iowa Loans for a Barndominium
Broadly speaking, there are three types of barndominium loans:
- Construction Loans: This is a one-time loan covering materials and workmanship, typically with a shorter loan term.
- Permanent Loans: This loan, which functions as a traditional mortgage, is meant to pick up where the construction loan leaves off, essentially refinancing what’s leftover.
- Construction-to-Permanent Loans: As you’ve likely gathered, this is a hybrid loan that covers all the bases. It’s the most common option you’ll encounter.
Financing Options for a Barndominium
You have more options for financing than you may realize, so if at first, you don’t succeed, don’t be discouraged.
Barndominium Financing Through Banks and Credit Unions
Banks, credit unions, and mortgage brokers are many folks’ first stop for home financing. If your bank has kept pace with the times, they may be willing to provide financing for your project. However, many of these shy away from barndominium financing — a problem that’s only been compounded as mergers and closings have tended to put genuine local banks out of business.
Barndominium Financing Through the Veterans Administration
VA home loans are popular for those who’ve served our country. However, it’s worth bearing in mind that the Veterans Administration does not originate the loan; they’re merely the loan guarantor; as such, the loan will originate with, and be serviced by, a bank or credit union.
Barndominium Financing Through Farm Credit
One issue with bank financing is that some banks still haven’t caught up to the fact that a barndominium isn’t necessarily an agricultural structure. If you have a standing relationship with a farm credit bureau, however, you may find them more willing to extend credit.
Nontraditional Approaches to Barndominium Financing
If you’ve ever used alternate lenders for a payday advance, car loan, or another form of personal financing, you may be wondering whether they’re viable to support your barndominium construction. The answer is a heavily-qualified “maybe.” While the purse strings may be looser, there are often other strings attached:
- Higher interest rates
- Higher origination and service fees
- Collateral requirements and other hidden catches
Taken together, these can mean a much higher lifetime cost for financing than the other options listed above.
What You Need Before You Apply for a New Construction Loan
There are a few steps to take before reaching out to a lender.
- Run your credit report to see what you may qualify for.
- Understand your budget so you know what you can safely afford month-to-month.
- Get a site survey and blueprints to present to the lender.
- Most lenders will require a third-party appraisal of construction costs.
- You’ll also generally be required to solicit multiple bids for your project.
How Much Do You Need to Put Down for a Barndominium Loan?
The more, the better. However, you should be aware that most barndo loans require at least 20% down, and that it’s better to put this down in cash. If you’re taking out a loan to cover your down payment, your lender is likely to hold it against you.
Get In Touch with Barndominium Builders in Iowa
Which financing option you choose will be based on the amount of cash you have on hand, your credit, and in some cases the relationship you’ve already built with your financial institution. While Koskovich & Murphy Developments is not a lender, our experience as a post-frame building contractor in the Sioux City area makes us a valued resource and trusted partner when it’s time to build your barndominium or other custom post-frame building. Get in touch today!