How much will my project cost?
One of the most important questions to answer when pursuing a construction loan for your barndominium build is, “How much will my barndominium project cost?”
This question is one of the areas where we see the biggest difference between expectations and reality. After financing barndominium construction projects across the country, we’ve found that many borrowers underestimate the total cost of building. Online calculators and rough estimates are a great place to start, but they’re rarely enough to support a construction loan. That’s why our process has two steps.
Pre-Qualification and Pre-Approval
First, we’ll complete a Pre-Qualification using your estimated square footage and projected budget to determine whether you’re likely to qualify. If the Pre-Qualification looks good, we’ll move to the Pre-Approval stage1. At that point, we’ll ask you to complete a detailed cost sheet and provide contractor bids, supplier quotes, and other documentation so we can establish an accurate project budget.
One important thing to remember is that we’re the experts on the financing, while your builder, subcontractors, and suppliers are the experts on construction costs in your area. They understand local labor, material costs, site conditions, and what it actually takes to complete the work. If you’re acting as your own general contractor or planning to complete portions of the finishing work yourself, we recommend getting two or three bids or estimates whenever possible.
Getting bids
A bid is just a bid. The actual bill comes when the work is performed, and costs can change based on labor, materials, site conditions, or changes to the project. It’s also important to vet your contractors and subcontractors carefully. Ask for references, check their experience, and make sure you understand exactly what is included in each bid. Comparing multiple bids can help you establish realistic costs and identify potential issues before construction begins.
Having realistic costs upfront helps prevent surprises during underwriting and gives you confidence that your financing is based on the true cost of your project, not just an estimate. The more accurate your budget is from the beginning, the smoother your construction loan process will be!
1 Both the Pre-Qualification and Pre-Approval stages are subject to applicable program requirements, underwriting guidelines, and credit approval.
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When should I apply?
Typically, we recommend starting the application process two to four months before you’re ready to dig a hole.
When you're preparing to apply for your barndominium construction loan, one of the first questions to answer is: Do you already own your land, or will the land be gifted to you? Having your land secured is typically the first major step before beginning the loan process. Once your land is in place, you’ll begin gathering your floor plans, construction budget, and project specifications. This is also a good time to start talking with your builder, contractors, and suppliers about realistic costs for your area.
Starting the financing process before you’re ready to break ground gives you time to assemble everything needed for underwriting and helps keep your project moving once construction is ready to begin. The earlier we can identify potential issues, the more time you have to address them before construction starts.
How much down payment do I need for a Barndominium Construction Loan?
One of the most common questions we hear is, “How much money do I need for a construction loan?”
Every project is a little different, but in many cases, you’ll need a 15% down payment, plus closing costs. The good news is that your down payment doesn’t always have to come directly from your savings. If you already own your land, the equity in that land may be used toward your required investment.
If you purchased the land within the last year, we can typically use your purchase price, less any outstanding loan balance. If you’ve owned it for more than a year, we’ll generally use the current appraised market value. Depending on your situation, equity in your current home may also be considered if you plan to sell that home. The amount of equity available and how it can be applied depends on your individual project, but understanding these options early can help you plan for your barndominium construction financing.
Do I qualify for a construction loan?
One of the questions we hear most often is, “Do I qualify for a construction loan?” But an even better question is: “What construction budget fits my financial goals?” The goal isn’t necessarily to qualify for the maximum loan amount. It’s about finding a project and payment that make sense for your overall financial situation.
There are three primary areas we review:
- Your credit history
- Your income and ability to repay the loan
- The overall equity and value of the project, including the scope of the project, build plans, and land
We’ll review your income, existing monthly obligations, and any additional qualifying income to develop a complete financial picture. If you’re self-employed, we’ll also evaluate your business income. We also consider the property itself, including the value of the land and the completed project. In many cases, equity in your land—or even equity in your current home if you plan to sell—may help satisfy part of your down payment requirement.
Every application is evaluated individually. Final approval depends on the overall strength of the application, compliance with underwriting guidelines, and the marketability of the completed property. Ultimately, we want to help you determine what you can comfortably build and finance—not simply what you can qualify for.
Why finance with the First Federal Bank of Kansas City Barndo Loan ProsTM?
Not all construction lenders are the same.
The First Federal Bank of Kansas City Barndo Loan Pros, have specialized in barndominium construction lending for more than four years, helping borrowers across the country finance unique building projects. Depending on your project, you may be able to act as your own general contractor, live on your property during construction, and complete portions of the finishing work yourself.
Our experienced construction lending team understands that every project is different. First Federal Bank of Kansas City has been serving customers for nearly 90 years, and we’ve been a member of the Home Builders Association since 1948. That long-standing experience in the building industry helps us understand the construction process and guide our customers from application through completion.
Building a home is a major investment. Our goal is to make the financing process as straightforward as possible and help you understand what to expect along the way. Talk to our team today!
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Ready to meet with First Federal Bank of Kansas City for your barndo build? Complete our project questionnaire below and we'll be in touch shortly to discuss options!
