What to Know Before Financing a Barndominium in North Alabama
Insights from Daily Thomas, VP of Lending
Barndominiums have quickly become one of the most talked-about property types across North Alabama. Whether you're looking to build on a small acreage tract or develop a full mini farm, barndos offer flexibility, functionality, and a unique rural lifestyle.
But while the idea is appealing, the process of buying land and financing a barndominium is often more complex than many buyers expect.
We sat down with Daily Thomas, VP of Lending at First South Farm Credit, to answer the most common questions we hear from borrowers considering this type of project.
What Is a Barndominium—and Why Are They Popular in North Alabama?
A barndominium (“barndo”) is a residential structure that blends traditional living space with a barn-style or metal building design.
They’ve become especially popular in North Alabama because they:
- Offer flexibility in design and use
- Pair well with rural or agricultural land
- Can be customized based on lifestyle needs
But as Daily points out, they’re not always the “cheap alternative” people assume.
“Barndos aren’t necessarily cheaper to build than a regular house. They can be, but it all depends on how you finish them—quartz vs granite countertops, custom cabinets, and other choices can drive costs up quickly.”
What Should You Consider Before Buying Land for a Barndominium?
Land is one of the biggest variables—and risks—in a barndominium project.
According to Daily, buyers often underestimate how much the land itself impacts total cost:
“What is the land like? Is it rocky or hilly? How much dirt work has to be done? This drastically impacts cost. Do you have room to construct the size building you want?”
Key land considerations in North Alabama:
- Terrain (rocky, sloped, or flat)
- Site prep requirements (grading, clearing)
- Usable building space
- Access to roads and infrastructure
What About Utilities?
Utilities are another area where buyers often assume barndos are different—but they’re not.
“Utilities are going to be the same for a barndo as a regular house. Are you going above or below ground with power? Well versus city water? Septic system versus sewer?”
One major wildcard:
“If on a septic system, does the land perc? If not, then your septic system will be much more expensive.”
What to evaluate:
- Power availability (and installation method)
- Water source (well vs public)
- Septic feasibility (perc test is critical)
Are Barndominiums Harder to Finance?
This is one of the biggest surprises for buyers.
“For traditional lenders, they don’t really fit conventional mortgage products. Appraisal comps can be tough to get, so a lot of times they won’t appraise for enough—requiring more of a down payment.”
Why this matters:
- Fewer comparable sales = tougher appraisals
- Lower appraisals = higher cash or equity requirements
However, working with a lender experienced in rural property and non-traditional builds can help navigate this.
What Does the Loan Process Look Like?
Barndominium financing typically follows a structured, multi-step process:
Step-by-step overview:
- Initial conversation with your loan officer
- Submit application and required documents
- Provide:
- House plans
- Cost breakdown
- Building contract (if applicable)
- Underwriting review
- Appraisal and title work ordered
- Final approval
- Closing → construction begins
“Once the loan is closed, construction can begin.”
How Much Do You Need for a Down Payment?
Down payment requirements are slightly different for construction loans:
“Our max loan-to-value on a construction loan is 80%, and 85% on permanent financing. Equity can be leveraged, but I always like to see a borrower have at least 10% of the cost in cash to cover construction overruns—which WILL happen.”
Key takeaway:
- Equity can count toward your down payment
- You should still have cash reserves on hand
What Financial Documents Are Required?
To apply for a barndominium loan, you’ll typically need:
- 3 years of tax returns / W-2s
- Most recent pay stubs
- Financial statement or balance sheet
- Verification of assets (bank statements, retirement accounts, etc.)
How Long Does It Take to Build a Barndominium?
“This can vary greatly, but typically within 12 months.”
Keep in mind:
- Delays are common
- Weather, materials, and contractor schedules all play a role
Can You Finance Land and Construction Together?
This is a very common question—and the answer depends on the structure of the loan.
“In certain situations we can. Primarily though, no. Barndo constructions are set up as a 12-month interest-only construction note, which requires a second close to convert to permanent financing.”
Translation:
- Construction loan first
- Permanent loan after completion
Can You Act as Your Own General Contractor?
“Typically no. If we approve an exception, I want to see construction or project management experience.”
There are also logistical challenges:
“For a self-contracted build, the borrower typically needs to float costs and then request reimbursements at periodic intervals.”
How Much Does a Barndominium Cost Per Square Foot?
“The answer is—it depends. Mainly on finishes and how high-end you go. My guess would be at least $150 per square foot, but that may not even be close these days.”
What impacts cost most:
- Interior finishes
- Customization level
- Site prep and utilities
Frequently Asked Questions About Barndominiums
Can you finance a barndominium and land together?
Sometimes—but most projects use a construction loan followed by permanent financing.
Are barndominiums harder to appraise?
Yes. Limited comparable sales can impact valuation.
What’s the biggest cost people underestimate?
Site prep and utilities, especially on rural land.
How much cash should I have on hand?
At least 10% of the project cost for contingencies.
Final Thoughts: Is a Barndominium Right for You?
Barndominiums can be a great fit for buyers looking for flexibility and rural living—but they require careful planning, realistic budgeting, and the right financing partner.
Working with a lender who understands:
- Rural land
- Construction financing
- Appraisal challenges
…can make all the difference.
Talk to a Lender Who Understands Barndominiums
If you’re considering buying land or building a barndominium in North Alabama, our team at First South Farm Credit can walk you through the process and help you structure the right loan.