How to Use Land Value to Finance a Church Building
Financing a church building can be a challenging prospect for most congregations looking to build their first place of worship. Most churches show little profit, if any at all; making it hard to qualify for most commercial construction loans for which banks and lenders usually require substantial amounts of positive income.
Still, organizations that own tracts of land can tap into their existing equity to help finance the construction of a church building.
Other People Are Reading
Things You'll Need
- Appraisal or broker price opinion
- Church income and expense statement
- Church balance sheet
Instructions
-
Know the Land Value
-
1
Order an appraisal or broker price opinion (BPO). To understand how much you can borrow against your land, you need to know how much it's worth. You'll also need to know how much the church will be worth when the building is completed. To do this you order an appraisal or a BPO. An appraisal is an official report of land and building value from a state certified appraiser, while a BPO is simply a broker's estimate. The former costs significantly more than the latter, but it is also a more accurate representation of true value. It is also the preferred report for most lenders.
-
2
Prepare the church's financial statements. You'll need to prepare an income and expense report showing how much money the church takes in and how much it pays out. You'll also need to make a balance sheet report which shows all the assets and liabilities of the church and resolves them to show the church's net worth. The bank will use these statements to qualify you for a potential loan.
-
-
3
Get construction loan quotes from local portfolio lenders. Local lenders know the neighborhood better and make more church loans than commercial lenders do. Speak to your local lenders and find out how much they lend on land for the purposes of building a church. You'll find most portfolio lenders will allow you to borrow up to 65 percent of the cost to build the church. That means you'll need to bring 35 percent of the cost to build in cash or equity. For instance, if the cost to build the church is $1,000,000 the bank will lend you $650,000 while you'll need to bring $350,000 to the closing table in equity.
-
4
Get land loan quotes from the same lenders. Here's where the current land value comes into play. If you have a piece of land with equity in it, you'll be able to get a loan on that property which will provide the equity you need to get the construction loan to finance the church building. Most lenders will give you up to 50 percent of the value of land. If your tract of land was appraised at $600,000 the lender would let you borrow 50 percent of that or $300,000. You need $350,000 equity and the land loan will provide $300,000 of that so your church will have to come to the closing table with $50,000 to get the construction financing.
-
5
Make a formal loan application. Submit your financial statements, appraisal, and other documents that may be required by your lender. Underwriting will likely take 30 to 60 days. The lender will place a lien on the land and allow you to draw funds for the construction of the actual church building. Once the construction is complete, the lien will automatically encompass the church building and land.
-
1
Tips & Warnings
You'll likely need a full set of construction drawings from an architect before an appraiser can accurately estimate the completed value of the church. A set of architectural drawings can range from $15,000 to $100,000 or more depending on the complexity of the architecture.
Construction cost estimates can also supplement an appraisal. To obtain these estimates you'll speak to local contractors and sub-contractor who can submit to you a detailed bid of all the costs you'll incur during construction and development of the church building.
Try researching loan programs, grants, and other low cost loan options from local non-profit agencies.
Beware of unscrupulous lenders who charge exorbitant origination and discount fees.
