If you have decided to expand your ministry and want to buy a new house of worship, here are a few pointers to consider before you begin the process:
1. Make sure you understand your borrowing strength – before you start shopping
Many banks will not, as a matter of policy, lend money to churches, temples, synagogues, or mosques. The few banks who do lend will impose stringent qualifications on borrowers. To avoid disappointment and wasted time, do a little homework before you call a real estate agent:
- Identify lenders with whom you would like to work and make an appointment.
- Collect and prepare your documentation. Bring to the meeting a current balance sheet and income statement. Make sure your articles of organization are up-to-date and valid.
2. Have a Full Deposit on Hand
Churches, temples, synagogues, and mosques are considered commercial property. As such, they typically require a purchaser to have a deposit of 20%, 25%, or even 30% of the total purchase price in order to be considered for a loan. It’s never too early to start planning for the deposit. Consider whether your funds are liquid and easily accessible; or perhaps you need to sell your existing church to access your deposit funds.
3. Tithes, Giving, and Offerings Dictate Loan Amounts
The rule of thumb is this: most banks will lend no more than three times annual giving. For example, if your independently-audited financial statement demonstrates tithes and offerings of $400,000, then a bank will lend you no more than $1,200,000. Be prepared for the bank to scrutinize your financials—they must feel confident that a congregation can afford to make their loan payment in good times and bad.
4. Terms and Rates— Different from Residential
Here is another difference between commercial and residential property. When borrowing money to purchase a church or house of worship, expect the interest rate to be higher and the term of the loan to be shorter than if you were purchasing a home.
Just as you are expected to present your tax returns when borrowing money to buy a house, you will be expected to present three to five years of independently-audited financial statements when borrowing to buy a church. Be sure to have the documentation in good order, and be prepared to produce related documentation to verify the numbers.