Church Construction Loans & Financing

An Overview of Church Construction Financing

Construction financing is a unique type of loan specifically structured around the building process. These loans last the length of the construction project and fund the process through step by step payouts.

Consequently, for faith-based organizations who will continue to own and manage the property after completion, we often recommend a loan structure with a construction-to-permanent financing option (referred to as a “term to perm loan”). That means you don’t have to refinance your loan at the end of construction.

Construction loans are not funded all at once, in a lump sum like other loans. They pay out based on stages – clearing land, laying infrastructure, pouring concrete. Everything up to the roof and even the final walk through is included on the plan.

Because a church construction loan is staged based on each phase of production, it means that the builder doesn’t get paid until their work has been thoroughly inspected. In addition, you don’t pay any interest on each stage of the project until the money is paid. That helps keep your project on time and on budget.

Do we need construction financing for our building project?

It depends. Sometimes you can find the perfect house of worship already built and selling for a great price. In that case, you want a church mortgage.  In other situations, a congregation may be able to leverage a church renovation loan to remodel or expand their current building to meet the needs of their growing community.

But in other cases, construction financing is often the best solution. Most often, communities of faith utilize church construction financing when there are no properties on the market that fulfill their vision. Other times, building a new property is less expensive than buying a comparable finished property.

Once you know that construction is the right path, should you obtain financing? Some faith organizations have amassed the reserves to pay for construction out of pocket, which avoids any interest during the construction process.

But for growing churches that don’t have sizable cash reserves, construction financing for the church provides an affordable tool to build a new home for their community. Even when a congregation can can pay for construction outright, the additional scrutiny that your lender applies to your church construction plan and their third-party verification of the work done at each stage can be worth it to keep the project within tolerance and on budget.

How do we qualify for a church construction loan?

Loans for church construction are approved on a variety of criteria. Lenders first want to verify that your community can make the payments in a timely manner during the construction period. Then, they want to confirm the organization is eligible for refinancing, or has a plan to repay the principal at project completion.  This is accomplished by examining the past a current financial statements – or budget – for the church.

Once the financial questions are out of the way, lenders want to dig into the construction plan. They will vet your general contractor and the subcontractors listed on the project. Their goal is to confirm the team is reputable and has the capacity to deliver. They also want to understand the details of the plan. What stages will be completed and on what timeline? There’s nothing that will throw a project off more than pouring concrete or shingling a roof in the wrong weather. If your leadership has not previously managed multiple large construction projects, this additional support from lenders can be invaluable.

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