Conventional Financing

Conventional Construction Loan: Steel Building Financing Guide

The most flexible mainstream option — available for primary residences, second homes, and investment properties with no geographic restrictions. PMI drops off at 80% LTV.

Good for Steel BuildingsBest for: Well-qualified borrowers who want maximum flexibility on property type and location

Min Down Payment

10–20%

Typical Rates

6.0–7.5%

Max Term

30 years

Min Credit Score

680

Program Overview

Conventional construction loans are not backed by a government agency — they follow guidelines set by Fannie Mae and Freddie Mac (conforming loans) or individual lender criteria (non-conforming/jumbo). They offer maximum flexibility on property type, location, and use, but require higher credit scores and larger down payments.

How It Works

Borrowers can choose between a single-close (construction-to-permanent) loan that converts automatically after construction, or a two-close approach with a separate construction loan followed by permanent financing. During construction, borrowers make interest-only payments on funds disbursed through a draw schedule.

Administered By

Private lenders following Fannie Mae/Freddie Mac guidelines

Program Types

Single-Close Construction-to-PermanentTwo-Close (Standalone Construction + Permanent)Jumbo ConstructionRenovation/Rehab Construction

Eligibility Requirements

Credit Score

680+ (720+ for best rates)

Minimum 680 for most lenders. 720+ gets the best rates and terms. Some lenders may go to 660 with compensating factors.

Down Payment

10–20%

Typical range is 10–20% of total project cost. 5% may be available with PMI. 20%+ avoids PMI entirely.

Income

No maximum limit

No income restrictions. Qualification based on DTI ratios: 36%/43% is standard, some lenders allow up to 50%.

Occupancy

Flexible — all types

Available for primary residences, second homes, and investment properties. Each has different rate and down payment requirements.

Eligible Property Types

primary residencesecondary homeinvestment

Eligible Building Types

barndominiumshopgaragecommercialresidential

Additional Requirements

DTI Ratio

36%/43% standard

36% front-end, 43% back-end is the standard guideline. Some automated underwriting approvals allow up to 50%.

Reserves

2–12 months PITI

Lenders typically require 2–12 months of reserves (principal, interest, taxes, insurance) in liquid assets after closing.

No geographic restrictions

Available nationwide

No rural area requirement or location restrictions. Available in any city, suburb, or rural area.

Step-by-Step Process

Pre-Qualification & Lender Selection

1–5 days

Get pre-qualified with conventional construction lenders. Compare rates, terms, and fees between single-close and two-close options.

Compare at least 3 lenders

Ask about both single-close and two-close options

Finalize Plans & Builder

2–6 weeks

Complete construction plans and select a licensed, insured contractor. Get a detailed cost breakdown.

Builder must be licensed and insured — verify credentials

Plans should include detailed specifications for the appraiser

Submit Application

1–2 weeks

Complete the loan application with construction plans, builder contract, cost estimates, and all financial documentation.

Include comparable sales data for steel buildings in the area

Provide detailed material specifications

Appraisal & Underwriting

3–6 weeks

The lender orders an appraisal based on plans and specs. Underwriting reviews your complete file for Fannie Mae/Freddie Mac compliance.

Conventional appraisers may need help understanding steel building values

Prepare a comparable sales package proactively

Closing

1–2 weeks

Close the loan. For single-close, this is your only closing. For two-close, this is the construction phase closing.

Review the draw schedule and inspection requirements

Understand interest-only payment calculations during construction

Construction Phase

4–12 months

Construction proceeds with funds disbursed through a draw schedule (typically 4–6 draws). Interest-only payments on disbursed funds.

Most lenders require 4–6 draws with inspections at each stage

Keep detailed records and communicate with your lender

Conversion / Permanent Financing

2–6 weeks

Single-close: automatic conversion. Two-close: apply for and close the permanent mortgage separately.

Single-close avoids rate risk — your rate is locked from day one

Two-close means you get current market rates for the permanent loan

Financial Details

Down Payment

10–20% typical. 5% possible with PMI. 20%+ eliminates PMI. Investment properties typically require 25%+.

Interest Rates

6.0–7.5% as of 2026. Construction phase may have a different (usually higher) rate than permanent phase in two-close loans. Rate depends on credit score, LTV, and property type.

Loan Terms

30-year and 15-year fixed rates most common. ARMs available. Construction phase is typically 12–18 months.

Fees

Origination fee 0.5–1%. Appraisal fee $500–1,500 for construction. Inspection fees $100–300 per draw.

Insurance

PMI required if LTV exceeds 80%. PMI costs 0.3–1.5% annually based on credit score and LTV. PMI automatically cancels at 78% LTV or can be requested at 80%.

Closing Costs

2–5% of loan amount. Seller concessions limited to 3% (for investment) to 6% (for primary residence with 10%+ down).

Loan Limits

Conforming limit: $832,750 for 2026 (higher in high-cost areas). Jumbo loans available above conforming limits with higher rates and stricter requirements.

Steel Building Considerations

Conventional loans are available for steel buildings and barndominiums, but success depends heavily on the individual lender. Some conventional lenders welcome steel construction; others have overlays that restrict it.

Common Challenges

Some lenders have overlays restricting non-traditional construction types
Appraisals can be challenging if comparable steel building sales are scarce
Higher credit and down payment requirements than government programs
Construction phase management requires experienced lender staff

Tips for Approval

Shop multiple lenders — policies on steel buildings vary widely
Community banks and credit unions are often more flexible than large national banks
Provide detailed comparable sales data to help the appraiser
Consider the two-close approach for more lender options during the construction phase
If your build exceeds conforming limits, jumbo lenders may be more flexible on building type

Lender Advice

Ask each lender directly: 'Do you finance steel-frame or metal-building construction?' and 'Have you successfully closed construction loans for barndominiums or steel buildings before?' Experience matters — choose a lender who has done it before.

Pros & Cons

Advantages

Maximum flexibility
Available for primary, second home, and investment properties with no geographic restrictions.
PMI drops off at 80% LTV
Unlike FHA's lifetime MIP, conventional PMI automatically cancels at 78% LTV or can be removed at 80%.
No income or location limits
No income caps, no rural requirement, no USDA/VA-style restrictions.
Single-close or two-close options
Choose the structure that works best for your situation and local lender availability.
Higher conforming limits
$832,750 baseline for 2026 — higher than FHA limits in most areas.
Jumbo options available
For builds exceeding conforming limits, jumbo conventional construction loans are available.
No upfront fees like MIP or funding fee
No mandatory upfront charges like FHA's 1.75% MIP or VA's 2.15% funding fee.
Widely available
More lenders offer conventional construction than VA or USDA construction products.

Disadvantages

Higher credit score required
680+ minimum vs 580 (FHA) or 620 (USDA/VA) — excludes borrowers with moderate credit.
Larger down payment
10–20% down vs 0% (USDA/VA) or 3.5% (FHA) — more cash needed upfront.
PMI if under 20% down
0.3–1.5% annual PMI cost until you reach 80% LTV.
Higher interest rates
Rates typically 0.5–1.5% higher than VA or USDA for equivalent credit profiles.
Strict underwriting
Fannie Mae/Freddie Mac guidelines are rigid — less flexibility than portfolio lending.
Appraisal challenges for steel
Conventional appraisers may be less familiar with steel building values than Farm Credit appraisers.
Reserve requirements
Must have 2–12 months of payment reserves in liquid assets after closing.
Inspection costs add up
$100–300 per inspection at each draw, plus the initial appraisal fee.

Common Pitfalls

Assuming all conventional lenders finance steel buildings

Many conventional lenders have overlays that exclude non-traditional construction, even though Fannie Mae/Freddie Mac don't explicitly prohibit steel framing.

How to avoid: Ask each lender specifically about steel-frame construction before applying. Get written confirmation they will finance your building type.

Not comparing single-close vs two-close

Some borrowers default to two-close without realizing single-close saves money and locks the rate. Others choose single-close without comparing rates.

How to avoid: Get quotes for both options. Single-close saves on closing costs and eliminates rate risk. Two-close may offer a lower construction rate and more lender options.

Underestimating reserve requirements

After down payment and closing costs, lenders require 2–12 months of reserves. Many borrowers drain their savings on the down payment.

How to avoid: Calculate total cash needed: down payment + closing costs + reserves. Ensure you have enough for all three before committing to a down payment amount.

Ignoring PMI costs in the comparison

Borrowers compare monthly payments without factoring in PMI, which can add $200–400/month until reaching 80% LTV.

How to avoid: Always include PMI in your monthly payment calculations when comparing to government programs. Factor in the timeline to reach 80% LTV.

Required Documents

Government-issued photo IDRequired

Valid driver's license, passport, or state ID for all borrowers

Income documentationRequired

Pay stubs (30 days), W-2s (2 years), tax returns (2 years) for all borrowers

Bank & investment statementsRequired

Most recent 2 months of all accounts showing reserves

Employment verificationRequired

Contact information for current employer, VOE letter

Construction plans & specificationsRequired

Complete architectural plans with engineer stamp and detailed material specs

Builder contract & credentialsRequired

Signed contract with licensed, insured builder, cost breakdown, builder references

Land documentationRequired

Deed if owned, purchase contract if buying, survey, legal description

Comparable sales dataOptional

Recent sales of similar steel/barndominium properties to assist with appraisal

Credit authorizationRequired

Written authorization for the lender to pull credit reports

Gift letter (if applicable)Optional

Documentation if any portion of down payment or closing costs comes from a gift

Frequently Asked Questions

Can I get a conventional loan for a barndominium?

Yes, but it depends on the lender. Fannie Mae and Freddie Mac don't explicitly prohibit steel-frame construction, but individual lenders may add overlays that restrict it. Shop multiple lenders and ask specifically about steel building experience.

What is the difference between single-close and two-close?

Single-close combines construction and permanent financing in one closing — one set of fees, rate locked from day one. Two-close has a separate construction loan (typically interest-only, 12–18 months) followed by a permanent mortgage with a second closing.

What are the 2026 conforming loan limits?

The conforming loan limit for 2026 is $832,750 for a single-family home in most areas. High-cost areas have higher limits. Jumbo loans are available above these limits but typically have higher rates and stricter requirements.

How does the draw schedule work?

Construction funds are disbursed in stages (typically 4–6 draws) as construction milestones are completed. Each draw requires an inspection to verify work completion. You pay interest only on the amount disbursed.

When does PMI go away?

PMI automatically cancels at 78% LTV based on the original amortization schedule. You can request removal at 80% LTV. Making extra payments or having the home appreciate can help you reach 80% faster.

Can I use a conventional construction loan for investment property?

Yes — this is a major advantage over government programs. Conventional allows investment property construction, typically requiring 25%+ down payment and slightly higher rates.

What credit score do I need?

Most conventional construction lenders require 680+. 720+ gets the best rates and terms. Some may go to 660 with strong compensating factors like large down payment and low DTI.

Can I act as my own builder?

Some conventional lenders allow owner-builder arrangements, but most prefer a licensed general contractor. If you want to be your own builder, look for portfolio lenders (community banks, credit unions) which are more flexible.

What happens if construction costs exceed the budget?

Cost overruns are the borrower's responsibility. The loan amount is fixed at closing. Build in a 10–15% contingency buffer in your budget. Change orders during construction are the most common cause of overruns.

How long does the construction phase last?

Conventional construction loans typically allow 12–18 months for construction. Extensions may be available but often come with fees. Plan your build timeline carefully with your builder.

Official Sources & Resources

Verify the information above directly from these official sources. Rates, terms, and eligibility requirements change frequently — always confirm with the lender or program administrator.

Fannie Mae Selling GuideOfficial Fannie Mae underwriting guidelines

Freddie Mac Single-FamilyFreddie Mac lending standards and programs

CFPB Conventional LoansConsumer guide to conventional mortgage loans

NerdWallet Conventional Loan GuideComprehensive consumer guide

Bankrate Construction LoansConstruction loan rates and comparison

Fannie Mae Construction GuidelinesSpecific construction lending guidelines

Freddie Mac ConstructionFreddie Mac construction conversion guidelines

Investopedia Construction LoansEducational overview of construction loans

In This Guide

Disclaimer: This guide is for informational purposes only and does not constitute financial, legal, or professional advice. Interest rates, loan terms, eligibility requirements, and program details change frequently. Always verify current information with the lender or program administrator before making financial decisions. Homestead Steel Structures & Design is not a lender, financial advisor, or mortgage broker. Last updated February 2026.

Ready to Finance Your Steel Building?

We help connect you with lenders experienced in steel building and barndominium financing — so you can focus on your build, not the paperwork.

Get Your Free Quote Explore Building Series

Conventional Financing

Conventional Construction Loan: Steel Building Financing Guide

The most flexible mainstream option — available for primary residences, second homes, and investment properties with no geographic restrictions. PMI drops off at 80% LTV.

Good for Steel BuildingsBest for: Well-qualified borrowers who want maximum flexibility on property type and location

Min Down Payment

10–20%

Typical Rates

6.0–7.5%

Max Term

30 years

Min Credit Score

680

Program Overview

How It Works

Administered By

Private lenders following Fannie Mae/Freddie Mac guidelines

Program Types

Single-Close Construction-to-PermanentTwo-Close (Standalone Construction + Permanent)Jumbo ConstructionRenovation/Rehab Construction

Eligibility Requirements

Credit Score

680+ (720+ for best rates)

Minimum 680 for most lenders. 720+ gets the best rates and terms. Some lenders may go to 660 with compensating factors.

Down Payment

10–20%

Typical range is 10–20% of total project cost. 5% may be available with PMI. 20%+ avoids PMI entirely.

Income

No maximum limit

No income restrictions. Qualification based on DTI ratios: 36%/43% is standard, some lenders allow up to 50%.

Occupancy

Flexible — all types

Available for primary residences, second homes, and investment properties. Each has different rate and down payment requirements.

Eligible Property Types

primary residencesecondary homeinvestment

Eligible Building Types

barndominiumshopgaragecommercialresidential

Additional Requirements

DTI Ratio

36%/43% standard

36% front-end, 43% back-end is the standard guideline. Some automated underwriting approvals allow up to 50%.

Reserves

2–12 months PITI

Lenders typically require 2–12 months of reserves (principal, interest, taxes, insurance) in liquid assets after closing.

No geographic restrictions

Available nationwide

No rural area requirement or location restrictions. Available in any city, suburb, or rural area.

Step-by-Step Process

Pre-Qualification & Lender Selection

1–5 days

Get pre-qualified with conventional construction lenders. Compare rates, terms, and fees between single-close and two-close options.

Compare at least 3 lenders

Ask about both single-close and two-close options

Finalize Plans & Builder

2–6 weeks

Complete construction plans and select a licensed, insured contractor. Get a detailed cost breakdown.

Builder must be licensed and insured — verify credentials

Plans should include detailed specifications for the appraiser

Submit Application

1–2 weeks

Complete the loan application with construction plans, builder contract, cost estimates, and all financial documentation.

Include comparable sales data for steel buildings in the area

Provide detailed material specifications

Appraisal & Underwriting

3–6 weeks

The lender orders an appraisal based on plans and specs. Underwriting reviews your complete file for Fannie Mae/Freddie Mac compliance.

Conventional appraisers may need help understanding steel building values

Prepare a comparable sales package proactively

Closing

1–2 weeks

Close the loan. For single-close, this is your only closing. For two-close, this is the construction phase closing.

Review the draw schedule and inspection requirements

Understand interest-only payment calculations during construction

Construction Phase

4–12 months

Construction proceeds with funds disbursed through a draw schedule (typically 4–6 draws). Interest-only payments on disbursed funds.

Most lenders require 4–6 draws with inspections at each stage

Keep detailed records and communicate with your lender

Conversion / Permanent Financing

2–6 weeks

Single-close: automatic conversion. Two-close: apply for and close the permanent mortgage separately.

Single-close avoids rate risk — your rate is locked from day one

Two-close means you get current market rates for the permanent loan

Financial Details

Down Payment

10–20% typical. 5% possible with PMI. 20%+ eliminates PMI. Investment properties typically require 25%+.

Interest Rates

6.0–7.5% as of 2026. Construction phase may have a different (usually higher) rate than permanent phase in two-close loans. Rate depends on credit score, LTV, and property type.

Loan Terms

30-year and 15-year fixed rates most common. ARMs available. Construction phase is typically 12–18 months.

Fees

Origination fee 0.5–1%. Appraisal fee $500–1,500 for construction. Inspection fees $100–300 per draw.

Insurance

PMI required if LTV exceeds 80%. PMI costs 0.3–1.5% annually based on credit score and LTV. PMI automatically cancels at 78% LTV or can be requested at 80%.

Closing Costs

2–5% of loan amount. Seller concessions limited to 3% (for investment) to 6% (for primary residence with 10%+ down).

Loan Limits

Conforming limit: $832,750 for 2026 (higher in high-cost areas). Jumbo loans available above conforming limits with higher rates and stricter requirements.

Steel Building Considerations

Common Challenges

Some lenders have overlays restricting non-traditional construction types
Appraisals can be challenging if comparable steel building sales are scarce
Higher credit and down payment requirements than government programs
Construction phase management requires experienced lender staff

Tips for Approval

Shop multiple lenders — policies on steel buildings vary widely
Community banks and credit unions are often more flexible than large national banks
Provide detailed comparable sales data to help the appraiser
Consider the two-close approach for more lender options during the construction phase
If your build exceeds conforming limits, jumbo lenders may be more flexible on building type

Lender Advice

Pros & Cons

Advantages

Maximum flexibility
Available for primary, second home, and investment properties with no geographic restrictions.
PMI drops off at 80% LTV
Unlike FHA's lifetime MIP, conventional PMI automatically cancels at 78% LTV or can be removed at 80%.
No income or location limits
No income caps, no rural requirement, no USDA/VA-style restrictions.
Single-close or two-close options
Choose the structure that works best for your situation and local lender availability.
Higher conforming limits
$832,750 baseline for 2026 — higher than FHA limits in most areas.
Jumbo options available
For builds exceeding conforming limits, jumbo conventional construction loans are available.
No upfront fees like MIP or funding fee
No mandatory upfront charges like FHA's 1.75% MIP or VA's 2.15% funding fee.
Widely available
More lenders offer conventional construction than VA or USDA construction products.

Disadvantages

Higher credit score required
680+ minimum vs 580 (FHA) or 620 (USDA/VA) — excludes borrowers with moderate credit.
Larger down payment
10–20% down vs 0% (USDA/VA) or 3.5% (FHA) — more cash needed upfront.
PMI if under 20% down
0.3–1.5% annual PMI cost until you reach 80% LTV.
Higher interest rates
Rates typically 0.5–1.5% higher than VA or USDA for equivalent credit profiles.
Strict underwriting
Fannie Mae/Freddie Mac guidelines are rigid — less flexibility than portfolio lending.
Appraisal challenges for steel
Conventional appraisers may be less familiar with steel building values than Farm Credit appraisers.
Reserve requirements
Must have 2–12 months of payment reserves in liquid assets after closing.
Inspection costs add up
$100–300 per inspection at each draw, plus the initial appraisal fee.

Common Pitfalls

Assuming all conventional lenders finance steel buildings

Many conventional lenders have overlays that exclude non-traditional construction, even though Fannie Mae/Freddie Mac don't explicitly prohibit steel framing.

How to avoid: Ask each lender specifically about steel-frame construction before applying. Get written confirmation they will finance your building type.

Not comparing single-close vs two-close

Some borrowers default to two-close without realizing single-close saves money and locks the rate. Others choose single-close without comparing rates.

How to avoid: Get quotes for both options. Single-close saves on closing costs and eliminates rate risk. Two-close may offer a lower construction rate and more lender options.

Underestimating reserve requirements

After down payment and closing costs, lenders require 2–12 months of reserves. Many borrowers drain their savings on the down payment.

How to avoid: Calculate total cash needed: down payment + closing costs + reserves. Ensure you have enough for all three before committing to a down payment amount.

Ignoring PMI costs in the comparison

Borrowers compare monthly payments without factoring in PMI, which can add $200–400/month until reaching 80% LTV.

How to avoid: Always include PMI in your monthly payment calculations when comparing to government programs. Factor in the timeline to reach 80% LTV.

Required Documents

Government-issued photo IDRequired

Valid driver's license, passport, or state ID for all borrowers

Income documentationRequired

Pay stubs (30 days), W-2s (2 years), tax returns (2 years) for all borrowers

Bank & investment statementsRequired

Most recent 2 months of all accounts showing reserves

Employment verificationRequired

Contact information for current employer, VOE letter

Construction plans & specificationsRequired

Complete architectural plans with engineer stamp and detailed material specs

Builder contract & credentialsRequired

Signed contract with licensed, insured builder, cost breakdown, builder references

Land documentationRequired

Deed if owned, purchase contract if buying, survey, legal description

Comparable sales dataOptional

Recent sales of similar steel/barndominium properties to assist with appraisal

Credit authorizationRequired

Written authorization for the lender to pull credit reports

Gift letter (if applicable)Optional

Documentation if any portion of down payment or closing costs comes from a gift

Frequently Asked Questions

Can I get a conventional loan for a barndominium?

What is the difference between single-close and two-close?

What are the 2026 conforming loan limits?

How does the draw schedule work?

When does PMI go away?

Can I use a conventional construction loan for investment property?

Yes — this is a major advantage over government programs. Conventional allows investment property construction, typically requiring 25%+ down payment and slightly higher rates.

What credit score do I need?

Most conventional construction lenders require 680+. 720+ gets the best rates and terms. Some may go to 660 with strong compensating factors like large down payment and low DTI.

Can I act as my own builder?

What happens if construction costs exceed the budget?

How long does the construction phase last?

Conventional construction loans typically allow 12–18 months for construction. Extensions may be available but often come with fees. Plan your build timeline carefully with your builder.

Official Sources & Resources

Verify the information above directly from these official sources. Rates, terms, and eligibility requirements change frequently — always confirm with the lender or program administrator.

Fannie Mae Selling GuideOfficial Fannie Mae underwriting guidelines

Freddie Mac Single-FamilyFreddie Mac lending standards and programs

CFPB Conventional LoansConsumer guide to conventional mortgage loans

NerdWallet Conventional Loan GuideComprehensive consumer guide

Bankrate Construction LoansConstruction loan rates and comparison

Fannie Mae Construction GuidelinesSpecific construction lending guidelines

Freddie Mac ConstructionFreddie Mac construction conversion guidelines

Investopedia Construction LoansEducational overview of construction loans

In This Guide

Ready to Finance Your Steel Building?

We help connect you with lenders experienced in steel building and barndominium financing — so you can focus on your build, not the paperwork.

Get Your Free Quote Explore Building Series