The Ultimate Guide to Church Building Loans

If your church has decided to purchase a church building, construct a new building or remodel your existing church building, you’ve probably found yourself moving through the process at a snail’s pace unsure of what to do.  Worse, you do not know if what you are doing is going to result in the best outcome for your church.

Each step is full of trial and error, and you have no idea what the next one will be at any given time. This happens because churches seldom partake in institutional loans, so the resources available to help you through the process are few and far between.

In fact, most church leaders who find themselves needing a church loan must rely on either their own past experiences in the area or apply the knowledge they have on home mortgage loans as they move through the process.

However, while there may be similarities between home and church loans, the two are vastly different, and that past knowledge can only get you so far.

If you’re considering taking out a church building loan but find yourself without the knowledge to do so, this article is a must for you.

Let’s get started!

Getting Started with a Church Mortgage

A church building is necessary, and it is generally better for a church to own a building than to pay rent. And because most churches do not have enough money to pay cash for the building, they generally need to borrow some of the funds to purchase.

Because of this, most church building loans will require a mortgage—that is, a temporary pledge of physical property to assure the lender that your payments will be made until the loan is paid off and then the pledge is removed from the property.

To help you decide what kind of church loan you need, you should first determine how much you need to borrow, how much money you want to put down towards the project (if any) and who will be your partners in the project (lender, architect, realtor, attorney…)

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How to Determine What Size Church Building You Need

Because of how widely unique and varied churches tend to be, there isn’t any single formula that works for every church, but there are some general guidelines that can help you:

• If you find that your congregation is stagnant or growing slowly, we recommend aiming for a church building that seats around 25% more than your typical weekly attendance. This will accommodate those members you have already and allow room to grow in the future.

• If your congregation has been experiencing steady growth for the past few years (around 5-15% per year), then you’ll likely need a more room to accommodate this growth. We recommend choosing a building size that allows for 50% more than your average weekly attendance. This will cover your growth over a reasonable period of time.

• If your church is booming and you have had significant growth over the past few years, you’ll want to go for a larger property or have additional property with which to expand the building. For situations like this, you really need to plan and understand how long the rapid growth will likely continue and plan accordingly.

How Long Should My Church Building Loan Take to Pay Off?

Once again, there isn’t any one answer to this question that will apply to all church organizations. It depends mainly on your church’s cash flow and other expenses, among other things. You have to decide what’s right for you. However, there are some guidelines you should consider:

• The payment on the loan should be manageable, with a margin of error in case the church experiences a dip in donations.  A good rule of thumb is the monthly payment should be no more than 1/3^rd of the church’s tithes and offerings.
• The loan should be long enough that the payments are manageable but not so long that the church is paying undue interest on a loan that the church can easily afford to pay off.
• The payments should be affordable enough that the church can maintain cash reserves of at least three months in the bank to cover unexpected expenses. 

How to Shop for a Church Building Loan

In the process of shopping for your church loan, there are several things you should keep in mind to ensure you’re getting the best deal for your church.

• Go to your current bank and ask them for their best deal.  Provided you are in good standing with your bank, they should be eager to provide a church loan proposal to you.
• But, don’t stop there, call a company that specializes in providing church loans and compare their offer against your current bank. 
• When comparing offers, take into consideration that it is generally better to pay a higher fee upfront to get a better interest rate because the church will save money over the long term.  Banks often times have lower upfront fees than specialized lenders, but higher interest rates.  Banks also often require personal guarantees, and these should be avoided whenever possible, even if it means paying a higher interest rate and loan fees.
• Choose a loan that meets the church’s payment needs, is large enough to complete the project and when possible, does not require personal guarantees.

Here are some things you should consider:

Understand Your Tithes and Offerings

When it comes down to it, the church mortgage will likely be entirely or almost entirely paid by the tithes and offerings your church receives from the congregation. Because of this, you want to make sure you understand how much your church is likely to receive each month.

To keep your church in good financial standing and ensure you have enough income to cover the necessary expenses, missions, etc., choose a loan whose annual payment will not exceed 35% of your yearly tithes and offerings.

Seek Congregational Approval

Because your congregation members are the ones who are paying the majority of the loan, it’s always wise to seek approval from your congregation before deciding to take out a church building loan.

Secure the support of your church members first before you begin shopping.

Understand Who is on Your Side—and Who Isn’t

As unfortunate as it is, the bank is out for the benefit of the bank and not for the church.  Despite the appearance of helpfulness of the bank employee, their job is not to look out for you, their job is to make the bank money.  However, a church loan broker is on your side and works against the lender to make sure you get a deal that is in the best interest of the church.  If you decide to hire a church loan broker then make sure they have experience in church loans and not just in general commercial loans.

Here are some things you can do to ensure that your church’s needs always come first:

• Shop around for lenders before you make your final decision. This will help you determine if one lender is giving you advice that isn’t in your best interest and will allow you to find a loan that best suits your needs.

• Consider lenders that specialize in church loans rather than going to a bank. These types of lenders will offer deals that best serve the church and (most importantly) genuinely care about your institution.

• Determine what your borrowing capacity is before you discuss plans with an architect. Then, don’t budge if the architect you choose tries to push you outside of those boundaries.

• Hire a church loan broker to take care of your needs.

• Ask your congregation to pray for guidance and smooth sailing throughout the process.

Once you’ve completed these tasks, you’re ready to move into the final stage of securing your church building loan.

What You’ll Need for Your Church Building Loan

As with any form of loan, there exists certain information and documents you must present to your lender to finalize your loan. These can vary from lender to lender, but here is what you can expect to need throughout the process:

• Summary of church’s income
• Credit documentation
• Information from your builder, such as
  • Resume
  • Examples of other church’s they have built
  • Professional References
• Detailed cost breakdown of the project

As mentioned, not all these things will be required by every lender out there. Some may require more and some less. Regardless, this list will provide you with a foundation you can use to show the bank that your plans are well-thought-out and that you’re serious about your church’s construction.

Summary

Building a new church isn’t an easy task by any means but securing a loan to get the process started doesn’t have to cause unnecessary grief. By following the steps outlined in this article, you can ensure that you’re well-prepared from start to finish.

If you’ve read through this post and are ready to take the first step in obtaining your church building loan, Griffin Church Loans is more than happy to help.

Unlike other lenders, we put your church’s needs and wants above all else. Our goal is to help your church blossom so you can help your congregation members do the same.

At Griffin Church Loans, we specialize in church loans and from 1999 to 2021 we have closed over $1.5 Billion in loans to churches for everything from the purchase of church properties to the construction of church buildings. 

Apply now if you’re ready, or read more about our process if you aren’t sure.