I have a customer who used cash to build a barn on bare land that they own. The barn contained living quarters. Now, they are applying for a construction loan to construct their home. Will R of R apply on the contruction loan?

Are they living in the barn now? If so I would give R of R.

Yes. Propety has 2 tracts. Barn is on 1 tract, new hime will be on the other tract. New mortgage will encompass both tracts.

Then since it's the borrower's primary residence and a lien will be placed rescission is required.

New mortgage will encompass both tracts.

You are taking a lien is what is the consumer's current primary residence therefore rescission is definitely needed. See the Commentary to 1026.23(a)(1)(3)& (4).