Barndominium Financing In Alabama: Complete Guide (2024)

If you’re building a barndo in Alabama, you’re not alone.

Barndominiums are quickly becoming one of the most popular new build options. After all, they offer fast, and cost-effective alternatives to traditional housing – while improving durability, reducing maintenance, and giving you the freedom of an open-floor plan with no interior load-bearing walls.

However, whatever your reasons for choosing a barndominium, you’ll still have to finance them. And, that can mean more difficulties than financing a traditional home. 

But, the good news is that more and more banks will offer barndominium financing under the same terms as a traditional home construction loan. However, you might find that your home is classified as a modular home and given similar terms. This will change your interest, mortgage, and insurance rates – so you’ll have to make sure you do your research. 

Financing A Barndominium In Alabama

Alabama makes it relatively easy to finance a barndominium. After all, you can relatively easily find banks and credit organizations that explicitly state that they finance barndominiums.

In addition, the state of Alabama is very open to things like owner-builder construction, which means you can generally get a loan even if you want to do much of the work yourself. 

Alabama is also a popular place to build barndominiums. This means that local banks are more likely to be willing to finance them.

In most cases, you can also get a construction loan with a credit score of 580 or higher – although you can expect that your downpayment will shrink as your credit score rises. 

Your Alabama Barndominium Loan Choices

You’ll have roughly the same choices in barndominium loan and financing options in Alabama as you would in any other state.

However, Alabama has a large amount of rural area, meaning that you’re more likely to qualify for USDA and agricultural loans than in many other states. 

Construction Loan 

The construction loan is the standard loan taken out to fund the construction of a new home.

Here, you typically get a construction loan for a period of 12-24 months where you’ll receive a short-term loan to fund the building of your home and the purchase of any materials. This may take the form of a lump sum loan or a line of credit, where your suppliers and builders are paid directly by the bank.

Then, at the end of the loan, you either pay it off in a balloon payment or convert it into a mortgage on the new home. 

Construction loans are ideal for barndominiums because you almost always complete the build within the allotted 12 months. This means you can best benefit from terms and can keep interest and payments to a minimum.

In addition, most banks offer them on barndominiums or on “modular homes with foundations”. 

However, if you take out a construction loan via a private bank, you can expect to require a 3-20% down payment depending on your credit score.

You might also have to check to ensure that your property purchase is included, as not all banks cover this. 

FHA Loan

A Federal Housing Association (FHA) loan is an ideal solution if you want a construction loan but can’t afford loan insurance or don’t qualify for a traditional private loan.

Here, most FHA loans are intended to purchase existing property. Therefore, you’ll have additional trouble being approved for a construction loan. However, you can buy or build a single or multi-family home with your FHA loan.

Rates are capped at $472,030 for a single-family home including property. You’ll also have to pay a 3.5% down payment with a credit score of 580. However, you can get an FHA loan with a credit score as low as 500, providing you have a 10% down payment. 

VA Loan 

If you are a veteran, a VA loan is the best option you can take. However, you’ll have to source VA-approved builders. On the other hand, you’ll get optimum rates, no down payment, won’t need to worry about credit score, and will get better interest rates than pretty much anywhere else.

But, if you do have to buy land with your VA loan, you’ll have to start construction immediately to qualify. 

USDA Loan 

A USDA loan is ideal if your home owns between 50-80% of the median-income and live outside of a big city, typically in an area with 20,000 residents or fewer.

Income is capped at around $108,000 for a 4-person household – but actual maximums will vary depending on income in your region. However, you can also check the specific address against the USDA’s eligibility map.

But, with 100% of costs covered, support for mixed-use buildings, an average interest rate of 3%, and loan terms from 2-30 years, it’s a great way to go if you qualify. In addition, USDA loans are designed to make rural housing accessible. 

Conventional Loans 

Conventional loans include direct loans, loans taken out on your assets, etc.

Here, you can expect that the most common is a loan provided through a lender and your metal building manufacturer. These are typically “just” for the products and services provided by your metal building company, for example, “just” the building kit or the building kit, erection, and foundation services.

These loans are typically for a few years, do require credit scores of 580+, and generally have higher interest rates. However, they are ideal if you want to do most of the work of interior finishing on your own.

Alternatively, you could take out a mortgage or a loan on your existing assets, saving yourself the hassle of going through an appraisal for your new barndo for a mortgage. 

Alabama Barndo Loan Criteria

Applying for a barndominium loan in Alabama typically means meeting state-specific criteria. However, they are very similar criteria to those set in most of the state. 

  • Down Payment – In most cases, you’re looking at a downpayment of around 10-20%. This means that if you have a $400,000 loan, you need $20,000 in cash to pay out of pocket. 
  • Credit Score – You’ll generally need a credit score of 580 or higher. However, especially national banks, will typically require a score of 620 or higher. That can change from financial institution to financial institution. 
  • Builder – You’ll either have to apply for an owner-builder construction permit or choose a builder up front. Some banks won’t finance owner-builders. 
  • Collateral – You’ll have to show proof of employment and income, show that you have 6 months of interest and taxes, and will typically have to insure the loan. 

That can sound like a lot, but it’s generally about the same in every state.

You have to prove to the bank that your finances are in order, show that you have a good builder, and have cash to cover your part of the costs. 

Barndominium Lenders In The Cotton State

Most banks will cover barndominiums under their construction loans. This means you can typically go to any lender providing mortgage financing. 

  • Alabama Ag Credit – This borrower-owner cooperative explicitly funds the building of barndominiums and similar homes. There are some specifications. The home must be outside of city limits or in a town with a population of 2,500 or less. In addition, it must be a single-family, owner-occupied home. And, the new home has to contribute at least 50% of the value of the property. But with no requirements for insurance and no escrow, this can be a great choice. 
  • Alabama Farm Credit – Alabama Farm Credit actually explicitly funds barndominiums. However, your home will have to be rural. Otherwise, Alabama Farm Credit offers loans to people of every income and for homes that are intended as lake homes, hunting cabins, and more. 
  • First Bank of Alabama – First Bank of Alabama offers a single mortgage loan on the appraised value of the barndo you’re building. It does have basic requirements for credit score and actual mortgage terms will vary, however, this local bank makes it relatively easy to finance your barndo. 
  • Wintrust Mortgage – Wintrust is an Alabama-based banking firm offering mortgages, conventional loans, and construction loans. Here, you can get financing up to $5 million with down payments as low as 5%. Terms are 12-18 months, after which you can convert the loan to a traditional mortgage. Wintrust also offers semi-fixed mortgage interest and payment rates. 
  • Hometown Bank – This local Alabama bank offers a range of home construction, land purchase, and line of credit loans ideal for building barndominiums. The bank also offers agricultural loans if your barndo is for mixed use. However actual rates and requirements will vary depending on your location. This bank also has banks across the state, making it easy to go to a branch to discuss your terms and options. 

What Next?

If you’re ready to get started building a barndominium, you need financing. Hopefully this guide gives you a good idea of what you’re looking for and what your options are.

If you’re ready to get started, use the form at the top of the page to compare the top barndominium financing options in Alabama, with rates, interest, terms, and requirements laid out for you.

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