Recently we’ve been diving deep into lending institutions’ risk calculations to help church leaders like you understand how much money you can expect to borrow for your church building project. In our prior post, we explained the various risk factors that lenders study to determine how much funding they will lend for a church design and building project. In this post, we will share examples to illustrate what we mean in concrete terms.

Sharing Two Church Building Funding Calculations

In this example we have two different church building funding calculations laid out. This is an overly simple illustration because more factors are involved in each actual case, but they give you the basic idea of how the process works.

These side-by-side examples show two different funding calculations, based on different risk factors. Both begin with the same basic premise: that your church has an average annual total income of $250,000. Lenders generally start with a base assumption that they won’t lend you more than three times that total income, or in this example, $750,000. Up to this point, the two calculations are the same.

Calculating Church Design Funding Based on Annual Revenue

In the left-hand column, the loan funding is based on the church’s annual revenue. Lenders don’t want “debt service payments,” which is the lender’s term for payments on the loan, to exceed 35% of your church’s total annual revenues. You don’t want to exceed this cap either, because it won’t leave you with enough funds to support your existing ministries, pay salaries, and so on.

As shown, this means a maximum total annual payment of $87,500, or a monthly payment of $7,291.67. Adding in the interest rate (which determines the interest you will need to pay) and a 20-year loan length gets a total amount that you can borrow of $1,041,230.55.

Running Different Risk Calculations for Comparison

But lenders don’t stop there. They use other calculations to help them determine the true ability of each church to pay back the loan. In the right-hand column, they figure out a maximum borrowing amount based on the number of giving units (which was also defined in our prior post). They expect that the average maximum that each giving unit will be able to pay each year (in addition to their existing annual pledge to the church to cover operations and mission) is $1,000.

So, if you’ve got 75 giving units in your church, lenders will allocate $75,000 per year to pay off the mortgage. This equates to a maximum monthly mortgage payment of only $6,250.00. With the same interest rate and loan length, the total amount you can borrow is only $892,483.33, which is more than $100,000 less than the other calculation. (We mentioned in our prior post that there were various factors that would decrease the lending figure, and this illustrates what we mean.) With these few parameters you can figure out a range of what your borrowing potential is. This provides you realistic figures to discuss what level of borrowing you are willing to take on if any at all.

It’s always good to begin a church design and construction project knowing what you can afford. Of course, if you have cash on hand that can be devoted to this church building process, that will increase your total projected budget.

Being realistic about the church design you can afford is always a good idea. Helping you stay informed and realistic about what’s possible is why we share our free i3 webinars every year. To learn more, sign up for our upcoming i3 webinars today.