Perhaps you’ve heard about barndominiums, or barndos for short.
If you have, you can either skip this paragraph and the next or stay with me because you may learn something more. If you don’t know what this popular housing concept is, read on anyway because you’re about to learn something you didn’t believe was possible.
A barndominium is a cross between a barn and a condominium. (Barn-dominium, do you see what we did there?)
You can renovate an existing farm building and keep the rural exterior, build one from scratch in the style of a traditional American barn, or buy one of the many kits, currently available from manufacturers, that you hire a local professional to assemble.
Depending on which one you choose and complying with the local building laws, you can create a barndo from wood, mixed materials, or steel.
Currently, the easiest barndo to assemble, most affordable, and most readily available are kits made from steel. Amazingly, you can erect most steel barndo kits in a few weeks.
How Does It Affect Me As A Veteran?
If you’ve read this far, you’re either in the military, an armed forces veteran, or a spouse looking for a way to own your home.
Well, did you know that the US Department of Veteran Affairs (VA) guarantees home loans to refinance an existing mortgage, and assist you with buying, building, or renovating a home of your own?
Furthermore, slightly outside the scope of this guide but still relevant if you need it. The VA also helps with repairing existing homes or adapting a home to suit certain military-derived illnesses or injuries.
The VA’s loan programs help to build, improve, or buy using three VA-backed loans or one VA direct loan. But, to qualify, you must be eligible for one of these loan programs:
- Purchase loan
- Interest rate reduction refinance loan
- Native American direct loan
- Cash-out refinance loan
We’ll discuss each of these and the eligibility criteria later in this guide.
Let’s hope we’ve whetted your appetite and you want to know more about these excellent home loan programs. If you do, then read on to find out more.
Understanding Barndo VA Loans
The VA home loan programs consist of VA direct and VA-backed home loans. The federal VA department designed these programs to assist current military service member, veterans, their spouses, and survivors with buying, building, improving, or refinancing a home.
Remember, they’re not giving away money here. You must still pay the loan back and have the required credit and income to cover the loan amount.
But, you may get much better terms than a conventional loan from a traditional lender such as a bank, mortgage company, or credit union. For example:
- Nearly 90% of eligible VA home loan borrowers won’t need to make a downpayment for their loan. Some lenders may ask for downpayments if you borrow more than the house is worth. But, loans with the VA direct won’t need a downpayment.
- Comparatively low loan interest rates.
- There’s no need for Private Mortgage Insurance (PMI).
- There are limited closing costs.
- You may use the home loan guarantee multiple times as it’s a lifetime benefit.
You can use VA direct loans and guaranteed loans for all types of homes, including barndominiums, as long as the barndo complies with the VA’s minimum property and occupancy requirements, local building codes, and zoning laws.
Let’s look at each loan type in turn and see what they are.
Lenders charge competitive interest rates on VA-backed purchase loans. Typically, you may use these products to build, buy, or improve a barndominium for you and your family. And if you can’t afford a downpayment, you may still be eligible.
Do I qualify for a VA-backed purchase loan?
This question is what you’ve been waiting for.
Generally, you may qualify if you meet all the following requirements:
- Comply with the VA department’s and the lender’s levels of income, credit, and other criteria.
- You qualify for a Certificate of Eligibility (COE).
- The home you buy must be your primary residence, and you must live in it.
Why do I want a VA-backed purchase loan?
The main advantages of a VA-backed purchase loan are:
- More favorable terms and lower interest rates than similar loans from banks, mortgage lenders, and credit unions.
- If the purchase price of the barndo is less than its appraised value, then there’s no downpayment.
- You can borrow up to the Fannie Mae/Freddie Mac confirming loan limit with no downpayment. However, if you want to borrow more, you can place a downpayment.
- There’s no need to buy MIP (mortgage insurance premiums) or PMI (private mortgage insurance).
- You pay fewer closing costs. Furthermore, the seller might pay for these.
- If you can pay the mortgage off earlier than the term, you don’t pay penalty fees.
What can I use the VA-backed barndominium loan for?
- Buy a single-family barndominium.
- Buy a barndo for renovation or improvement.
- Buy a manufactured home, including a barndominium kit.
- Build a new barndo.
- Make your existing barndo more energy-efficient.
- Buy your first home.
- Use the VA loan again if you decide to sell or refinance a previous barndo.
For more information about the VA-backed home purchase loan, visit the VA website or contact your local VA office.
Interest Rate Reduction Refinance Loan
Suppose you already have an existing VA-backed home loan and want to reduce the monthly payments.
In that case, choose the interest rate reduction refinance loan (IRRRL).
Do I qualify for an IRRRL?
Well, you may qualify for refinancing an existing VA home loan if you meet all the following criteria:
- You already have a VA-backed home loan, and you want to refinance it.
- You currently live in or used to live in the barndo bought using the home loan.
Why do I want an IRRRL?
An IRRRL’s main advantages are:
- Negotiating a more favorable interest rate to lower your mortgage payments.
- To move the loan from a variable to a fixed interest rate.
However, get professional advice on whether you can afford the new payments and closing costs and understand what you’re getting into.
Native American Direct Loan
If you or your spouse are Native American and you qualify for help because of your military connections, there is another route for help with a home loan.
The Native American Direct Loan (NADL) program may assist you with buying, renovating, or building a home on federal trust land. Furthermore, you may also be eligible for refinancing an existing NADL to get a better interest rate.
Do I qualify for an NADL?
You must be one of the following:
- A Native American Veteran
- A non-Native American Veteran with a Native American spouse
Furthermore, you must meet all the following:
- You have a valid VA home loan COE (Certificate of Eligibility).
- You meet the necessary credit requirements.
- Your tribe’s government has an MOU (Memorandum of Understanding) with the VA Department.
- You have proof of the required income.
- The barndominium will be your primary residence.
Why do I want an NADL?
An NADL has several benefits, including:
- No need for PMI (private mortgage insurance).
- In most cases, you don’t need a downpayment.
- Limited mortgage closing costs.
- A 30-year fixed rate mortgage. Currently, the interest rate for a NADL begins at 2.5%. Contact an NADL coordinator to find out what your current interest rate will be.
- You can use the NADL more than once to help with other barndo projects.
- Refinance an existing NADL for a lower interest rate.
Cash-out Refinance Loan
The VA also guarantees a cash-out refinance loan (CORL), which may be what you’re looking for. A CORL replaces an existing loan for a new loan with more favorable terms. For example, you can refinance a non-VA loan into a VA-backed loan. Alternatively, you may take cash out of your home equity.
Do I qualify for a CORL?
You can apply for a CORL if you satisfy all the following criteria:
- Eligible for a VA-backed loan Certificate of Eligibility.
- Your income, credit, and other financial circumstances meet the VA’s and your lender’s requirements.
- The CORL relates to your primary residence.
Why do I want a CORL?
The CORL’s main advantages are:
- You can take cash out of your home’s equity to pay off past or future debts.
- Refinance an existing non-VA loan to a loan with competitive interest rates.
- You can borrow up to the Fannie Mae/Freddie Mac loan limits with no downpayment. However, if you want to borrow more, you must make a downpayment.
Before entering into a CORL agreement, get professional advice and understand if you can afford the payments and how the new loan relates to your home’s value.
Eligibility For A Barndominium VA Loan
If you want to apply for a Barndominium VA loan, you must first successfully receive a Certificate of Eligibility (COE). This certificate proves to your lender that you qualify for a VA loan.
A COE describes your service history and duty status. However, understand that you must also satisfy your lender’s borrowing requirements for income and credit.
The first thing to remember is that you may be able to get a COE if you had an honorable discharge and met the minimum active duty service requirements.
Minimum Active-duty Service Requirements
In general, you can receive a VA loan if you served for 181 days during peacetime, 90 days during war, six years in the National Guard or Reserve, or 90 days under orders. However, for more detailed information, use the following links.
- Veterans’ active duty service requirements vary depending on the dates when they served. You’ll find the qualifying dates and active service requirements here.
- Current service personnel must have served a minimum of 90 days of continuous active duty.
- Active duty requirements for National Guard members also vary depending on the dates when they served. You can find the service requirements here.
- You can find information on minimum active duty requirements for Reserve members here.
If you don’t meet the minimum service requirements, you may still be eligible for a COE if you received a discharge for one of the following reasons:
- A service-related disability.
- Specific medical conditions.
- A reduction in force.
- You served 21 months of a two-year enlistment and requested an early out.
- “For the federal government’s convenience.” But, you must have served for 20 months of a two-year enlistment.
If you received bad conduct, dishonorable, or any discharge other than honorable, you are not eligible for VA benefits.
If either of these applications is successful, the federal government may reinstate your benefits, or you may receive reduced benefits.
Finding A Barndominium VA-Approved Lender
The main thing to realize is that VA loans are usually issued by local and national banks, mortgage companies, credit unions, and other mortgage lenders, not by the Department for Veterans Affairs.
The favorable terms offered for VA loans come about because the VA guarantees the loans. Therefore, home loans are a less risky proposition for private lenders.
Firstly, find a lender willing to take on a VA loan. Generally, there are plenty of mortgage lenders, including your current bank, who will issue a VA-backed home loan.
But, if you have problems finding a suitable lender, contact your local VA home loan representative, who can answer any questions and point you in the right direction.
As of October 2023, Forbes online magazine compiled a list of particularly good VA loan issuers. In alphabetical order, these are:
- Guaranteed Rate – Offers low lender fees.
- Guild Mortgage – Closes loans quickly.
- Flagstar Bank – Requires low credit scores.
- Loan Depot – Fast online pre-approval.
- Navy Federal Credit Union – The best choice for military home loan benefits.
- Penfed Credit Union – Best open member eligibility credit union.
- PNC – Easily accessible.
- Rocket Mortgage – Best online lender for VA benefits.
- Veterans United – Best customer service.
Comparing Loan Terms and Interest Rates
At the time of writing (24 October 2023), the weekly national average VA mortgage interest rate increased from the previous week’s 7.3% to 7.49%. Furthermore, the weekly VA refinance interest rate rose to 7.5% from the last week’s 7.31%.
As you can see, interest rates seem to be increasing. But, they naturally fluctuate, so they might drop as quickly as they rise.
Compare the current VA home loan rates
The following is the best way to compare interest rates for your VA-backed mortgage:
- Are you eligible for a VA loan? Apply for and receive a Certificate of Eligibility.
- Get pre-approval for your loan. Get quotes for interest rates from a minimum of three VA mortgage lenders. For the best comparison, get the quote on the same day. Remember, your quote will depend on your credit score, downpayment (although this isn’t always necessary with the VA loans, debt-to-income ratio, and other relevant factors. So, get your finances in order and increase your credit score before applying.
- Inspect and compare the APR and interest rate. These two factors determine the cost of your loan. Generally, the APR gives a more complete picture of the total cost.
Prepare Your Finances
One of the qualifications for a VA loan is to satisfy the lender of your financial stability. However, this is easier than with a non-government loan, and the VA gives much better terms.
Use the following list to check on your financial credibility.
Your lender determines your creditworthiness and decides on your risk. For this, they need your credit score and history, which helps them decide whether or not you can repay the loan.
People with a score of 650 or over usually get a loan with lower interest rates. The higher your credit score, the better your interest rates.
Borrowers need a good debt-to-income ratio.
By comparing your income and debts, the lender determines how much you can pay back each month.
There are three credit bureaus: TransUnion, Experian, and Equifax. These companies detail your debt history and how you paid back your loans.
Lenders use these reports to determine how easily you can repay their loan.
Income and Employment History
To repay a loan, you must have an income, which means employment of some kind. The lender needs proof that you have a steady income and how much you earn.
Furthermore, you also have to provide an official ID, regular monthly paychecks, and tax returns. This information proves you can legally work in the US.
Some types of loans, such as the Interest Rate Reduction Refinance Loan (IRRRL) and other home equity loans, require collateral as a downpayment. Generally, this is a property.
The refinance loan is then secured, and interest rates will be less than for a non-secured loan.
Usually, as long as the property price is less than its assessed value, you won’t have to pay a downpayment with a VA-backed loan.
Before you get a home loan, the lender must know how much the property is worth. Its value depends on how much similar properties in the area cost.
Generally, it’s easy for an assessor to decide when you buy a conventional house, as there are plenty of examples for them to use. But, some counties don’t have many local barndominiums for assessors to base their value on.
However, assessors can consider regular modular or kit homes in their report, so it may not be as difficult as it first seems.
Getting Pre-Approved For A Barndominium VA Loan
A home loan pre-approval is an initial statement from the lender saying how much you can borrow based on your financial circumstances.
The importance of the pre-approval is so that a borrower knows they can, in theory, get finance. Also, it may help get them lower interest rates, and it shows prospective sellers that they’re serious about their purchasing power.
More importantly, pre-approval highlights any issues present in their credit history and gives them time to repay old debts or correct a mistake that might delay the loan.
The best way to get an accurate pre-approval for a VA loan is to:
- Tell the lender everything they ask for, even if you think it’s irrelevant.
- Don’t keep secrets. The lender will always find out if you have any financial issues you would rather not tell anyone about. Typically, these could be an old bankruptcy or borderline credit score. So, it’s best to let them know at the start so they can help sort things out. If you keep secrets, they’ll believe you’re untrustworthy, and you may lose your loan.
- Ask plenty of questions. If you’re not sure whether you’ve information relevant to your application not covered in the usual questionnaire, ask. It might make all the difference.
- Pre-approval isn’t the same as approval. The latter only happens when the lender has access to all your financial documents and can prove what you say. If everything is okay, the lender approves your application for a VA home loan.
- Don’t apply for more credit between pre-approval and approval. If you do, then the pre-approval process must start all over again. So, before you take out another credit card or buy a new car, wait until you’ve closed your VA home loan.
Finding The Right Barndominium Property
You must have a home appraisal to ensure the barndominium you want to buy is acceptable to the VA. An appraisal differs from a home inspection, which is optional but still worth doing.
A VA appraiser carries out a home appraisal on behalf of the lender to confirm the house’s market value is fair and in line with similar houses in the area.
Once they have this value, lenders decide whether you’re paying a reasonable price and that there’s enough collateral in case you default on the home loan.
However, VA appraisers also confirm that the property meets the VA minimum property requirements. The VA wants to know that the property is in good condition and doesn’t need too much money spent on it, which puts you even more in debt.
Furthermore, the VA must know that the house is safe, sound, and has adequate sanitation.
The Barndo VA Loan Application Process
You must know how the VA loan is processed.
VA Appraisal and Inspection
Generally, the following describes the main VA minimum property requirements:
There must be year-round access to the barndominium, and a homeowners association must manage any private roads.
Also, the property must not cross neighbors’ property lines or infringe on their rights.
The barndo must have enough space for the purchaser’s family.
This doesn’t mean it must be large, only that it has enough living space, bedrooms, kitchen and dining areas, and bathrooms.
Water supply, drainage, and sewage
There must be access to safe drinking water all year round. The barndominium must also have access to hot water and sanitary facilities for everyone in the family.
It must also have safe sewage disposal, which could be municipal or a septic tank system if local building codes allow.
The property must be away from flood zones, sinkholes, environmental contamination, and other natural hazards. Furthermore, the barndominium must not have asbestos, lead-based paint, or radon.
The VA considers anything that affects the family’s safety or the safety of the property a hazard. However, you can insist on the seller fixing these problems, or you can walk away from the sale.
Every house guaranteed by the VA must have the usual utilities. These include a working HVAC system, electricity, and gas. Also, all utilities must be safe and operate according to the local building codes.
Furthermore, heating appliances must heat the house in the winter, and air conditioning must cool the house in the summer.
All surface water drainage must run away from the foundations. Furthermore, there must not be any water pooling on the surface.
Pests, dry rot, and other deterioration
The assessor will note any issues caused by pest infestation, termites, dry rot, or other structural problems.
The property must be structurally sound. The roof must have at least three years of life remaining. Attics, basements, and crawlspaces must be free from debris, provide easy access, have sufficient ventilation, and not need immediate maintenance.
The roof must protect the rest of the barndo from moisture ingress and not need immediate maintenance.
If there are any pools on the property, they must be in good working order and safe to use.
As we’ve already said, a barndo doesn’t need a home inspection for a VA-backed loan. But, an inspection is always recommended. If you have an inspection, the inspector will take a close look at the barndominium and how it functions.
Therefore, you’ll know what you’re buying and whether there are any surprises in store once you’ve bought it. You’ll also learn what issues may be a problem sooner or later.
Schedule a home inspection as soon as you sign the sales contract. Then, you can decide early in the sales process whether you want to proceed with the transaction.
It also allows you to renegotiate the price if the barndominium needs significant repairs or get the seller to fix the problems.
Underwriting and Loan Approval
We may regard underwriting as the final review of the home loan.
The first of two underwriting stages happens during the pre-approval process. At that stage, VA lenders use a computerized process known as an “Automated Underwriting System” or AUS.
However, some eligible borrowers slip through the net and won’t obtain AUS approval. In this case, lenders often use a manual underwrite, which usually requires more stringent criteria.
Typically, a previous bankruptcy, foreclosure, or even late mortgage payments can trigger an AUS issue. So, a manual underwrite can be a helpful safety net.
During the second underwriting stage, the lender’s manual underwriting team verifies all the documents mentioned in the pre-approval stage, and updates essential information before passing the file to the underwriters.
Underwriters inspect the file to ensure everything is in order, meets all the lender’s and VA requirements, and that you’re a safe risk. At this stage, the underwriter can do one of the following:
- They deny your loan. This is rare, as the pre-approval stage should have found all significant problems.
- They issue a Clear-to-Close. Your file is clean, and you can close the sale. Generally, having a CTC is rare for the first time through an underwriter.
- You receive conditional approval on the loan. Usually, this is the most common situation. Generally, it means the underwriter requires additional documents, corrected errors in the application, or questions answered before the file can proceed.
Closing the VA Loan
Shortly before closing day, but earlier than three days, you must review the Closing Disclosure, which lists all loan fees and costs and helps compare how fees have changed since the Loan Estimate in the pre-approval stage.
Don’t panic; the difference won’t be too extreme. Some fees can’t change, and others only change by a maximum of 10%. However, there are a few that can change without limit. Ask your lender or real estate agent if you have any questions.
Typically, a Closing Disclosure contains the following:
This page copies the same format as the Loan Estimate and shows how the monthly loan payment has changed from the estimate.
Usually, it doesn’t change at all. Also, it shows the final closing costs and the total amount you need to close the deal.
This page provides a full breakdown of all closing costs. This includes the following:
- Costs paid before closing
- Those paid on closing
- Costs paid by the seller
- Those paid by the buyer
This page contains a table comparing your Loan Estimate to the final cash-to-close.
This page contains additional information about the loan. Each loan differs, so check with your lender what information they include.
This page shows how much you pay over the entire loan term. Furthermore, you’ll see the Annual Percentage Rate (APR) and the Total Interest Percentage (TIP).
Also, the page lists the contact details of your real estate agent, the lender, and other stakeholders.
Typically, your barndominium VA purchase loan takes about 30 to 45 days to close, comparable to conventional home loans.
Within 24 hours of closing, you can have a final walk-through of your barndominium to check that everything is in order and that the seller has done all repairs highlighted by the VA Assessor or the inspector.
If things aren’t as you expect, notify your real estate agent.
The Closing Disclosure will discuss payment methods. Generally, the only accepted payment methods are a cashier’s check or a verified wire transfer.
However, sometimes the seller agrees to pay all costs, in which case, you don’t need to pay anything on closing.
What do you sign?
Those present at the signing with you will be the title company representative, your real estate agent, and sometimes the seller’s real estate agent.
Generally, you must sign the following:
- Closing disclosure
- Promissory note detailing your agreement with the lender.
- Mortgage deed, which pledges the barndominium as security for the home loan.
- The warranty deed transfers the property’s legal title from the old to the new owners.
- VA Form 26-1820. This is the Report and Certification of Loan Disbursement, confirming that the lender is closing a home loan complying with the VA’s requirements. You also verify that the barndo will be your primary residence.
- IRS Form 4506-T. This Request for Transcript of Tax Return is for the lenders to double-check your income and tax information.
- Initial Escrow Account Disclosure estimates what you pay into the escrow account during the first year. This covers annual property tax and homeowners insurance.
- Borrower’s Certification and Authorization certifies all information you’ve provided is accurate.
- Affidavit of Occupancy records that the VA buyer will use the barndominium as their primary residence within 60 days of closing.
During the home loan closing, you’ll take the title of the barndominium. There are several ways to title property, and you should take legal advice on which one is best for your circumstances.
Talk to your attorney or loan officer about which titles are available. But, do it a long time before closing day.
Many people believe that buying a house, or in our case, a barndominium, can be a longwinded process, which is best avoided. However, nothing is further from the truth.
Let’s recap on the steps needed to get a barndominium VA loan:
- Find a VA-approved lender.
- Apply for a Certificate of Eligibility.
- VA Loan pre-approval.
- Look for your barndominium.
- Under contract.
- VA loan closing.
- Sign the paperwork.
- Take the barndo’s title.
- Start paying the VA loan monthly payments.
After many years of being posted to far-flung reaches of the world, it’s great for you and your family to have a place you can call home. And, even if you’re still in military service, you have a safe and secure home for your family while you’re overseas.
So, remember, all you need to do is satisfy the VA requirements, have a credit rating and debt-to-income ratio to satisfy the lender, and pay the monthly loan payments at an affordable interest rate, courtesy of the VA.
Then, you may end up with your dream barndominium, which many people would give almost anything to own.
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