Church Mortgage Loans

Overview of Church Mortgages

In many ways, the church building become the home for their congregations. The church or temple building becomes a symbol of the community’s commitment to growing together, providing the physical space for its members to gather.

But church properties often start in the millions. So how do congregations purchase them? There are a variety of different financing tools available, but the most common (and typically most cost effective) solution is a long-term church mortgage or church building loan.

A church mortgage — sometimes referred to as a church building loan — is a form of financing that helps organizations purchase their properties. It’s a mortgage with specific benefits and underwriting processes tailored to churches and places of worship.  Church mortgages typically offer many benefits for congregations, including:

• Lower interest rates compared to other types of financing
• Longer repayment terms than most standard loans (up to 30 years)
• Flexible underwriting criteria
• Financing up to 80% of the purchase price (and in some cases higher)

For churches looking to buy new property, obtain additional space or refinance existing debt, a church mortgage may be the best solution.

Should we rent or purchase our space?

As property costs have skyrocketed, it is becoming more common for churches to find themselves stuck paying rent in malls, theaters, office buildings, and even college campuses. In the long term, however, rent is money that is exiting the community, rather than money that is being invested to make the community stronger.

With the right funding model and strategy, congregations can invest in themselves by purchasing land and property that can be shaped to meet their mission. Then, as the church mortgage loan is paid off, the church building becomes an asset that can be used to secure a line of credit, or as the foundation upon which to fund other properties or even land development. Just as for individuals, over the long run owning your home – rather than renting it – is the less costly and more financially stable path.

Do we need a church mortgage for our building?

Faith communities have a number of ways to fund the acquisition of new building. The first is to raise the money to purchase the property outright. Within wealthy communities, or those that have an extended reach through television or online, that’s a possibility. But even these communities often fund at least a portion of their acquisition cost through a church mortgage loan so that they can use the rest of their capital for property improvements, mission work, and outreach to spread the message to even more people. If a faith community puts down 20 – 50% of the property value, it’s well on its way toward paying the property off, but it also sets a community capital fund goal that congregants can rally behind.

Utilizing a church mortgage also helps to preserve cash. If a community puts too much money into equity too quickly, it can feel the pinch on its operating budget. The leadership may have to take equity-based loans to free up some of that capital, which could unnecessarily increase the cost of money.  At Faith Based Funding, our church lending consultants help your team match with a lender who will provide loan terms that match your community’s vision.

Which types of church building loans are available?

There are two main types of church building loans.

The most common financing is long-term or “permanent” financing. These loans are church mortgages secured by the property and are most closely akin to a home mortgage. Interest rates are low for this type of financing. The term, or length of the loan, is long. Monthly payments include principal, interest, and often an escrow payment toward taxes and insurance.

The second option is a bridge loan. This financing helps organizations acquire a property quickly, funding in as little as one week. Monthly payments are interest only, which keeps down costs. However, these are short-term solutions that last for only a few years. This is why they are referred to as a “bridge” – a temporary solution that spans the time between purchasing a property and refinancing the property using a permanent mortgage with a lower interest rate.

How do we qualify for a church mortgage?

Qualification for permanent financing, or church mortgages, is heavily based on your community’s cash flow. Donations, book sales, and even retreat or workshop receipts all count towards cash flow. The higher and more consistent your cash flow, the better.

Another way to qualify for a church building loan is to leverage existing assets. If your faith community owns additional properties, a printing center, a community kitchen, or a residence for the pastor, these are assets that can back a faith-based property loan.

Bridge loans, however, don’t rely on your community’s financial statements in the same way. Rather than looking at your history of donations, revenue, and costs, bridge financing instead focuses on the value of the property itself. The amount of available funding will be determined almost exclusively by the appraised value of the property. This often makes bridge financing an ideal solution for new communities without a long financial track record.  Our consultants will help you evaluate the pros and cons to find the best solution.

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