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builder hammers a nail into a wooden beam New building home, nailing hammer
We are Jessica and Alfredo. We are building our barndominium from the ground up with our own hands and have documented the entire journey online in hopes of inspiring and empowering others to DIY their home too.

Barndominium Budget Code: Determining What You Can Afford


Today we are going to discuss the financial aspect of building a Barndominium. Specifically, how to figure out how much one can afford before building. Figuring this out seems very complicated so hopefully this post will help you with that process, providing a detailed guide on how to budget for your Barndominium construction, whether you intend to finance it using a construction loan or cash.

Read on to get practical advice, strategic budgeting tips, and factors to consider when deciding your budget. We are excited to be part of your journey and wish you the best as you tackle this exciting journey. 

Understanding Your Financial Position

The first crucial step on the path to building your dream Barndominium is understanding your current financial position. Knowing your finances inside and out will help ensure that your building project does not become a financial burden. So let’s break down how to do this.

Importance of a Comprehensive Financial Assessment

Consider this a personal audit. Just as businesses review their financial health periodically, it is essential for individuals to do the same. This assessment will help you make informed decisions about your Barndominium build as well as the rest of your financial commitments. 

Calculating Personal Net Worth

Your net worth is the difference between what you own (assets) and what you owe (liabilities). Calculating your net worth is a simple yet effective way of understanding your financial standing.

Start by listing all your assets, which can include money in your bank accounts, investments, real estate, vehicles, and personal items of significant value. Then, list your liabilities, which can be any outstanding debts like mortgage, car loans, student loans, credit card debts, and others. Subtract your liabilities from your assets, and the result will be your net worth.

Understanding Your Credit Score and Its Implications

If you are considering a construction loan, your credit score will play a significant role. Lenders use credit scores to assess the creditworthiness of a borrower. A higher score usually translates into better loan terms, including lower interest rates.

Keep in mind, credit scores do not impact your ability to use cash for building your Barndominium. However, maintaining a healthy credit score is a good financial habit.

Okay, now that you have a better understanding of your financial position, the next step is to estimate how much the construction of your Barndominium will cost.

Estimating Barndominium Construction Costs

As with any construction project, several factors can influence the total cost. So now let’s talk about how to determine the cost of building a Barndominium

Key Factors Influencing Barndominium Construction Costs

There are quite a few considerations that will affect the final price tag of your Barndominium. Here are some of the most significant:

  • Size and Layout

    • Just as with traditional homes, the bigger the Barndominium, the more materials and labor will be required, leading to a higher cost. The layout can also play a significant role. For instance, open floor plans can sometimes be more cost-effective than segmented ones due to less interior framing and fewer doors and walls.
  • Location and Land Costs

    • The price of the land where you plan to build your Barndominium can greatly affect your overall budget. Furthermore, the geographical location will impact construction costs. Certain areas may have higher labor costs or require specific building codes that could increase expenses.
  • Material Choices and Amenities

    • The types of materials you choose for your Barndominium, both exterior and interior, can have a substantial effect on the final cost. Higher-end materials like hardwood flooring or granite countertops will cost more than budget-friendly alternatives. The same goes for amenities like high-end appliances or custom cabinetry.
  • Labor Expenses

    • DIYing will save major money by doing at least some of the work yourselves. But if you are hiring professionals, labor costs will vary widely depending on your location and the complexity of your project.

Importance of Getting a Realistic Cost Estimate

While it might be tempting to simply use a basic per square foot estimate for your Barndominium, I strongly encourage you to seek out a more detailed and customized estimate. Meeting with a builder or contractor who has experience with Barndominiums can provide you with a realistic range of what your specific design might cost. If you are self-building or self-contracting, getting quotes from subcontractors for each different part of the building will help you get accurate estimates. Make sure you ask them to itemize the labor fees from the materials so you can subtract the labor fees.

Considering a Contingency Fund

No matter how carefully you plan, unexpected costs can and likely will arise during your Barndominium construction. This could be due to unforeseen issues with the land, changes in material prices, or even a change of heart about a certain aspect of the design. Setting aside a contingency fund of about 10-20% of the project cost can help you navigate these unexpected expenses without breaking the bank.

Now that we’ve discussed cost factors, let’s talk about how much you can afford if you plan to finance your Barndominium with cash or a construction loan. 

Building with Cash: Pros, Cons, and How Much You Can Afford

Perhaps you have been saving for years, or maybe you sold your previous home and are ready to invest in your Barndominium fully. Regardless, deciding to build with cash has its own set of considerations.

The Upsides and Downsides of Building with Cash

Building with cash offers numerous advantages, one of the primary ones being the lack of interest payments. Unlike with a loan, every dollar you spend goes directly into your home. You also save on loan origination fees and closing costs. Plus, without a mortgage payment to worry about, you may have more financial flexibility once your home is built.

On the flip side, spending a large amount of cash at once could potentially drain your savings, leaving little cushion for emergencies or other financial goals. This is a key factor to keep in mind as you consider your financial future. Some build as they get the funds which will obviously prolong your build even more. 

Determining How Much You Can Afford

Figuring out how much of your cash you can put toward building your Barndominium involves taking a close look at your current financial situation and your future plans. Here are some steps to follow:

  • Applying Home Construction Budgeting Rules of Thumb

    • One common rule of thumb is that the cost of your home should not exceed 2.5 times your annual income. However, this is not a hard-and-fast rule. Depending on other financial commitments and living expenses, you may decide to set a lower or higher budget.
  • Evaluating Your Liquidity Needs

    • Liquidity refers to how quickly you can convert assets into cash. While it is tempting to pour all your savings into building your dream Barndominium, you should maintain a reasonable amount of liquidity for emergencies or unexpected costs. Financial advisors typically recommend having three to six months’ worth of living expenses in a readily accessible form.
  • Keeping Future Financial Goals in Mind

    • Remember to factor in other financial goals, such as retirement, college tuition for kids, or vacations. Also, keep in mind the ongoing costs of living in your new Barndominium, like utilities, maintenance, property taxes, and home insurance.

Next, let’s talk about construction loans if that is more your speed.

Using a Construction Loan: Pros, Cons, and How Much You Can Afford

If you do not have the cash to finance your Barndominium fully, or if you prefer not to deplete your savings, a construction loan might be the perfect option for you. Let’s explore what this entails.

Understanding Construction Loans

A construction loan is a short-term loan used to finance the cost of building a home. It works a little differently from a traditional mortgage. The lender pays out the money in stages as work on the new home progresses. Typically, you will only pay interest on the amount disbursed until the construction is completed. At that point, the loan either must be paid in full or converted into a permanent mortgage.

The Advantages and Disadvantages of Construction Loans

Construction loans allow you to maintain a cash reserve while your home is being built. They offer flexibility and are ideal for custom projects like a Barndominium, where costs might not be as predictable as in traditional homebuilding.

However, these loans also have their drawbacks. They often come with higher interest rates and more stringent approval requirements. You will also need to pay closing costs twice if you convert your construction loan into a mortgage after building is complete (luckily our bank only required one closing cost).

Determining Your Eligibility and Affordable Loan Amount

The amount you can borrow with a construction loan depends on several factors. Let’s talk about them:

  • Assessing Your Debt-to-Income Ratio

    • Lenders look at your debt-to-income ratio, which is your total monthly debt payments divided by your gross monthly income. A lower ratio means you have less debt and more income to service a new loan.
  • Considering Your Credit Score

    • As with any loan, a good credit score will improve your chances of securing a construction loan and getting favorable terms. Lenders see a high credit score as an indicator of financial responsibility and low risk.
  • Factoring in Other Qualifications

    • Lenders also consider other factors, such as the value of the land you own, the estimated value of the completed home, and the builder’s qualifications and reputation.

Calculating Your Monthly Payments

Once you know how much you are eligible to borrow, you can calculate your potential monthly payments. Use an online loan calculator to help you do this, like this one. Remember to factor in the interest rate and the loan term.

Comparing and Contrasting: Cash vs. Construction Loan

Now that we have explored both the cash and construction loan options for financing your Barndominium, let’s take a moment to compare and contrast these two methods. Both have their unique benefits and drawbacks and understanding these will help you make the right choice for your situation.

Key Differences

One of the most noticeable differences between using cash and a construction loan is the impact on your immediate financial situation. With cash, you will see a significant deduction from your savings, whereas with a construction loan, you will take on a new monthly payment.

When you build with cash, you become the owner of your home outright as soon as construction is completed. With a loan, on the other hand, you will need to make monthly payments until the loan is fully repaid.

Scenario Analysis (I’m a psychologist, it’s my nature to do analyses) 

To help illustrate these differences, let’s look at a couple of hypothetical scenarios:

  • Building with Cash Scenario

    • Say you have saved $200,000 for your Barndominium build. You have estimated the total construction cost to be $180,000, leaving you with a $20,000 buffer. Once your Barndominium is built, you will own your home outright. However, your savings will be significantly reduced, which could leave you vulnerable to unexpected expenses.
  • Construction Loan Scenario

    • In this scenario, let’s imagine you have a $100,000 down payment saved for your Barndominium, which is estimated to cost $200,000 to build. You take out a construction loan for the remaining $100,000. Your savings remain relatively intact, but you now have a monthly loan payment. However, you also have the peace of mind that comes with maintaining a significant savings balance.

These scenarios hopefully show the importance of considering your unique financial circumstances and future plans when deciding how to finance your Barndominium project.

Money-Saving Tips for Barndominium Construction

Whichever financing route you choose, minimizing construction costs can make your Barndominium dream even more attainable. From our experience, here are some money-saving tips to consider.

Creating a Detailed Budget

It cannot be overstated how important a detailed budget is. By outlining your expected expenses, you can track costs, manage spending, and avoid any unpleasant financial surprises. 

Start by budgeting for essential costs such as land, construction materials, and labor. Then, move on to less critical costs like interior finishes, furniture, and landscaping.

Doing Some Work Yourself

If you are reading this blog in the first place, chances are you are here because you want to self-build or self-contract. You will save lots of money going this route!

Opting for Cost-Effective Materials

Choosing less expensive materials can significantly reduce your overall building cost. For example, you could choose laminate countertops instead of granite, or vinyl flooring instead of hardwood. Be sure to balance cost savings with durability and maintenance considerations.

Planning for Energy Efficiency

Implementing energy-efficient designs and appliances might require an initial investment, but they can save you money in the long run. Consider things like efficient insulation, solar panels, and Energy Star-rated appliances. Also, do not forget about the potential for tax credits and incentives for energy-efficient homes.

Monitoring Construction Progress

Keeping an eye on the construction process can help identify and correct errors early, potentially saving on costly fixes later. Regularly visit the site (if using a professional builder and keep in close contact with your builder or contractor).

For more tips, read this post here.

Or need specific ideas on ways to save money or to earn extra money? Click here to get a 50 item list for free to give you some ideas.

Final Thoughts

Well, that’s all I got. I hope you have found this article somewhat helpful in figuring out how to determine what you can afford before building! Please do not hesitate to ask any questions.

Feel free to follow our self-build journey on Instagram and TikTok. And please leave your email address below to be updated when we release beneficial products to help you on your journey!

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builder hammers a nail into a wooden beam New building home, nailing hammer
We are Jessica and Alfredo. We are building our barndominium from the ground up with our own hands and have documented the entire journey online in hopes of inspiring and empowering others to DIY their home too.