A Series Of Equal Cash Flows Is A N Building a Church: What Can You Afford?

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Building a Church: What Can You Afford?

Whenever a church begins to consider expanding its facilities, there is sure to be a fierce battle between two giants: needs And resources. Titan resources There must be an ultimate winner in this competition if the church is to successfully build new facilities. Therefore, if a church needs to borrow money to complete an envisioned facility, it is important to look at the church’s (its resources) finances and assets, from a lender’s perspective, in the early planning stages of any project.

Lenders deal with hard numbers and have developed underwriting standards to manage the risk they incur on loans. The lending industry is changing, so if you talked to your banker two years ago and it didn’t seem feasible for you to set it up at the time, don’t despair. Capital is available to churches for projects with good ideas. In fact, recently, interest rates have dropped and loan forgiveness terms have expanded, both of which have created favorable conditions for churches seeking funding for expanding facilities and growing ministries. There are lenders who specialize in church funding and who understand the unique finances and operations of churches.

While eligibility procedures and formulas will vary from lender to lender, here are some guidelines:

Debt to Asset Value Ratio: Most lenders will lend 70% to 80% of the appraised value of a completed project including land and existing improvements. The new loan amount usually includes the repayment of the existing loan. For example, let’s say you’re currently paying $4,000 per month for your land and still owe $200,000. New building and site development costs are budgeted (and assessed) at $2,000,000. Your land is appraised at $400,000. Therefore, the total assessed value is $2,400,000. The bank is willing to lend 80% of the $2,400,000, which is $1,920,000. From this loan the bank will pay off the balance on the land of $200,000 which will leave $1,720,000 for construction costs. In our example the construction budget is $2,000,000 which means the church needs a down payment of $2,000,000 – $1,720,000 = $280,000. The church is no longer paying $4,000 per month for the land, so these funds can now be put toward new mortgage payments. Suppose the loan amount is $1,920,000 for 25 years at 6% = $12,370 per month – $4,000 = $8,370 per month Additional mortgage payment for land and buildings.

Loan waiver: Church loans can be amortized over a period of 15 to 30 years. Amortization is the calculated amount of equal monthly payments required to pay off the loan over a period of time. For example, a $2 million loan, if amortized over 20 years at 6% interest, would require 240 equal monthly payments of $14,389. A similar loan amortized over 30 years would require 360 ​​payments of $11,991. Using a longer term allows the church to borrow more money for the same monthly payment. In this example, if the church can afford to pay $14,389 per month, it has the option of borrowing $2 million and paying it off in 20 years, or the church can decide to borrow $2,400,000 and pay it off in 30 years.

Loan amount to gross income ratio: Lenders like this ratio to be less than 3 to 1. So, if the church were to borrow $2,000,000, its total revenue would be about $670,000 per year.

cash flow The proposed new loan payment should be exceeded by 20%. In other words, the church should have some money left over at the end of each month after paying the new monthly mortgage payment and all of its other expenses. Your cash flow will include your current monthly cash surplus, as well as any remaining payments after the new loan is made. (For example, this may include payments on existing loans that do not exist after the new loan is made. The church may also expect to deduct utility and maintenance costs from the new building.) In addition, the lender often has pledges received in a crowdfunding campaign that will be collected in future months.

How much you can build is a function of the loan amount you qualify for, as well as any assets you can add to the loan amount. If the church is selling land or buildings, the equity proceeds from the sale combined with the cash in the savings account and expected cash from the mortgage can determine how much the church can spend on new facilities.

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