Financing a barndominium is different from buying a finished house, but it is very doable with a lender who has closed these loans before. The short version: you are borrowing against a home that does not exist yet, so the lender looks at the land, the builder, the plans and the budget along with your credit and income. This page explains the loan types, how appraisals work for barndominiums, and what to have ready, and introduces the lender we recommend starting with.
Shaun helps Middle Tennessee buyers finance their homes with CMG Home Loans from the Franklin branch on Crescent Centre Drive, and he is the lender we recommend starting with for land and barndominium projects. [Add a sentence in Shaun’s words about his construction and land loan experience.]
Barndominium Loan Types
Construction to permanent loan
One loan, and often one closing, that pays the builder in stages during construction and then converts to a regular mortgage when the home is finished. It is the most common path for barndominium buyers because you qualify once.
Land loan, then construction loan
You buy the land first with a land loan or cash, then take out a construction loan when you are ready to build. This works well if you find the right land before you have plans and a builder, but it can mean two approvals and two sets of closing costs.
Using land you already own
If you own the land outright or have significant equity in it, many lenders will count that equity toward the down payment on the construction loan.
Government backed options
Some lenders offer FHA, VA or USDA construction programs, which can mean a lower down payment for eligible buyers. Availability varies by lender and by property, so ask early.
Get approved for the whole project, not just the land
How Barndominium Appraisals Work
For a construction loan, the appraiser values the home as if it were already finished, based on the plans, the specifications and the budget. The challenge with barndominiums is comparable sales. If few finished barndominiums have sold nearby, the appraiser may lean on traditional homes with similar size, acreage and finish level. A well documented plan and specification sheet helps, and so does a lender who knows how to order these appraisals.
What to Have Ready
- Recent pay stubs, W-2s or tax returns, and bank statements
- Information on the land: contract or deed, survey and soil evaluation if available
- Floor plan and a specification sheet showing finishes
- The builder’s signed contract and itemized budget
- Builder license and insurance information
- A cushion for overages, since most construction budgets include a contingency
How the Money Moves During the Build
The lender does not hand the builder a check on day one. Funds are released in draws as the work reaches set milestones, such as foundation, framing, dry in and finish, usually after an inspection confirms the work is done. You typically pay interest only on what has been drawn until the home is finished.
Frequently Asked Questions About Barndominium Financing
Are barndominiums hard to finance in Tennessee?
Not with the right lender. The loan is structured as a construction loan rather than a standard purchase mortgage, and the lender reviews the land, plans, budget and builder along with your finances.
How much down payment do I need for a barndominium?
It depends on the loan program and your finances. Conventional construction loans often ask for more down than a standard purchase, while some government backed programs allow less. Equity in land you already own can often count toward it. Your lender can give you an exact figure.
Can I get one loan for the land and the build?
Yes. A construction to permanent loan can often include the land purchase along with the construction, so you close once.
Why do barndominium appraisals come in low?
Usually because there are few comparable barndominium sales nearby. A detailed plan and specification sheet and a lender experienced with these appraisals help reduce that risk.
Start With a Conversation
Not sure whether to buy land first or finance everything together? Reach out and we will walk through the options and connect you with a lender. You are always welcome to use your own.
Stephen Strickhausen is a licensed real estate agent with Benchmark Realty, LLC, License #313360, and is not a mortgage lender. Loan programs, down payments and approval are determined by the lender. Information on this page is general education, not a loan offer or commitment. You are always free to choose your own lender.
Send Stephen a Message
Tell Stephen where you are in the process, whether you already own land, and he will be in touch.
Prefer to talk? Call or text 615.480.5770 · SStrickhausen@gmail.com