Update! Since writing this blog one of my lender will now finance a Barndominium. You will need to present at least one "Sale Comp" to even have your deal considered. A Sale Comp is the sale of a like home (in this case a Barndominium), in the area that you are building, within the last year, on an MLS. This sale needs to support the cost to build your Barndominium.
If you are building a home that is common for your area, a home where there are many similar homes that have sold in the last year, in the same area, for what it will cost to build your home or more, you can stop reading. On the other hand, if you are building an uncommon type of home, if your lot is larger than what would be common in your area, or the cost to build your home will be higher then what you can purchase a similar new home for, please read the following carefully!
Lenders don’t like “non-traditional” homes, they don’t like “excessive” land and they will not lend more to build your new home then what other similar homes in the area sell for. If you are paying cash to construct your new home, you can build whatever kind of home you want. Putting down 30% or more? You can build a home that’s a little “out of the box”. But if you are doing a zero down VA loan, a 3.5% down FHA loan or a minimum down conventional loan, you need to build a home that is common for the area, on a common amount of land.
What kind of home do lenders consider “non-traditional”?
*Multi Unit homes
*Pole barn homes
*Geodesic dome homes
*Homes that significantly exceed the average sale price in the area
*Homes with an over sized garage
*Homes with any kind of commercial or industrial element to it
*Manufactured homes, in some areas
This is not an all inclusive list, but hopefully you get the idea.
How much is too much land?
*10 acres is a good rule of thumb but much depends on what is common for the area. In a suburban area, anything over a couple acres maybe excessive. Further out from the suburbs, 5 to 10 acres is not uncommon. In rural areas, 10-30 acres may not be uncommon, so long as you are not farming it.
*Another good rule of thumb is that your land should be about 20% to 35% of the total cost of the project in most areas. This would not apply to waterfront property or high land cost areas.
*Buying more than one buildable lot will be flagged as excessive every time.
Put yourself in the position of the lender.
A certain percentage of all the loans you do every year are going to fall into default. Once you foreclose on these homes you want to sell them as quick as you can and for as much as you can. The more common the home is for the area, the higher a demand you will have for it, the quicker you will sell it and for good price. What you don’t want is a “unique” home that only a few people will be interested in.
Give me a call and I would be happy to go over your project with you. It’s so much better to address this issue in the beginning that after you have paid $550 for an appraisal that doesn’t come in at value.