Best Practices When Shopping for a Church Loan


Shopping for a church loan can be a big undertaking. Most people are familiar with residential mortgages, but a church requires a commercial mortgage, and with that comes different guidelines to follow. Consider the following best-practice recommendations when shopping for a church loan:

Understand what interest rate terms may mean for you.
Many banks refer to balloon notes as “fixed rate loans.” This is somewhat misleading. While “fixed rate” has a positive connotation in the residential market when the loan term is 15 or 30 years, on a 5-year balloon commercial note, the rate is only fixed for the 5-year term. The benefit of an adjustable rate loan in the commercial mortgage market is that you know up front how high your rate is allowed to go. Plus, the loan is guaranteed to remain until you pay off the entire balance. If your church currently has a balloon note, fill out our Mortgage Risk Evaluation tool to identify potential areas of improvement.

Don’t borrow more than you can afford.
Only consider your tithes and offering income when determining how much your church can afford to borrow. Designated income, such as missions and benevolence, should not be used to pay your mortgage.

Borrow for the longest period possible.
Having a longer amortization schedule (and therefore lower payments) can give you the flexibility in your budget for cash flow fluctuation. No matter how accurate your projection, some months your income will be lower than others. Don’t let ministry stability suffer because you’re committed to a larger loan payment.

Pay off your loan as quickly as possible.
Some months your income may be higher than expected. Use that extra cash to pay down your debt. As you shop for loans, make sure you don’t have a prepayment penalty so that you can take every opportunity to make extra principal payments on your loan and save your ministry money on interest in the long run.

Mitigate the long-term risks to your ministry.
It is important that we are wise stewards of the ministry and resources God has entrusted to us. You can’t afford to look at the future of your ministry in 5-year increments. To avoid incurring the costs and risks of refinancing every few years, look for a loan with a longer term rather than a shorter term. Learn more about avoiding risk with your mortgage by reading “What is Your Church Loan Really Costing You?

Talk to a direct lender that understands ministry.
Working with a direct lender instead of a mortgage broker can help you avoid unnecessary broker fees. In addition, a direct lender that has a strong understanding of church ministry will be more aware of growth trends, ebbs and flows, and the needs of a growing church. This is beneficial for the church throughout the entire relationship with the financial institution.

As you search for the loan solution that is best for your ministry, contact us to discuss your options. Call 866.621.1787 or email to set up a time to speak with a loan consultant.

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