What Is the Current Church Building Loan Rate? - Griffin Capital

What Is the Current Church Building Loan Rate?

Are you a borrower shopping for a church building loan? Then, you must thoroughly investigate your options and ask the right questions to avoid making mistakes. The truth is there are many factors to consider in this regard. However, church building loan rates remain among the most important considerations.

Also called interest rates, loan rates refer to the amount you must pay for borrowing money. In other words, your church building loan rates determine how high your borrowing cost is. Generally, interest rates reflect risks — the higher the loan rate, the more risk the lenders assume. Other factors that influence interest rates include the loan size, duration, credit history, length of term, location, etc.

So, what is the current interest rate on a church building loan? Keep reading to find answers to this question and more.

What Is a Church Building Loan?

One of the challenges churches face nowadays is ensuring enough room for congregants. As the church grows and congregations expand, buildings become too small to accommodate everyone. Let’s face it; no church wants to turn down a crowd of worshippers. So, the alternatives would be repurposing already available space or building a new one.

church building loan rates

Whatever your options, the execution requires lots of time, planning, and funds. Unfortunately, churches often don’t have enough savings to complete their project immediately. Without immediate results, the congregants can get uncomfortable and leave. Again, the more time it takes to save enough money, the easier it becomes to get discouraged.

The good news, however, is that you can easily overcome this roadblock by taking a church building loan. Church building loans provide the finances to construct your church building or expand an existing one. With church loans, you’ll have enough money to provide enough space for your congregants in no time. It also ensures you have immediate and adequate resources to get top-notch materials for your church building project.

What Are the Different Types of Church Building Loans?

You have a variety of church building loans to choose from. The best option depends on factors like your credit score, ability to pay back, and available security. The following are the different types of church building loans:


Mortgages are one of the most common types of loans for church buildings. With mortgages, the lender pays for the church building and allows you to reimburse them over a predetermined time frame. The building entirely becomes yours when the mortgage ends.

If you decide to get a mortgage, you can modify the building to suit your preferences/needs. Mortgages also allow you to choose how you want to utilize the property.

Generally, churches opt for mortgages when they want to undertake large construction projects. These are typically projects that cost at least $75,000. Also, note that mortgage loans require borrowers to put up security for the money. Common examples of collateral for church building mortgages include land, vehicles, personal residence, etc.

Long and Short-Term Loans

Borrowers who need funds for church building projects can choose between long or short-term loans. Your choice will significantly better determine the overall amount you must repay.

For example, if you choose a short-term loan, your monthly payments will be higher.  This is to ensure that you pay back within a short timeframe. However, lenders make the interest rates for these types of loans high to ensure that they make a profit.

Long-term loans are the opposite of short-term loans, as your payments are spread over many months. As such, your monthly instalments will be lower compared to short-term loans. Unfortunately, this also means that your overall repayment amount will be higher.

Another thing to note about long and short-term loans is that they’re typically fixed-rate and variable-rate, respectively. While fixed interest rates are predictable, variable rates have sliding interest rates. This means that with short-term loans, your payments may be inconsistent even though you get to pay up quickly.

Church Mortgage Loans

Borrowers who wish to finance their church building project almost always need real estate as collateral for the loan. As the name implies, Church Mortgage Loans require you to use real estate as collateral for the loan.  The real estate used as collateral is usually the real estate that is being bought or constructed upon, but not always.

With a mortgage loan, the lender has a legal claim over the assets you put up as security. As such, they can get their money back by selling the assets if you default on the loan.

On the other hand, an unsecured loan has no collateral or security protecting it. Usually, this type of loan is smaller than mortgages and is more expensive. Lenders do not generally give churches large unsecured loans.

Construction Loans

Construction loans are debt products that exclusively cater to new building or expansion projects. They’re short-term loans that generally convert to a permanent mortgage once the construction project is completed.

There are two types of construction loans:

1. Stand-Alone Construction Loans

Stand-alone construction loans are also called two-time-close construction loans. In this arrangement, the lender pays the builders/contractors according to the percentage of work done. In turn, you’ll have to pay interest on every withdrawal. Also, you must pay the entire loan when it matures or get a new mortgage to pay off the construction loan.  These are rare as lenders usually want an exit strategy when making a construction loan.

This loan type suits borrowers who wish to build new church or make additions to their current building. It’s also an ideal choice if you need a new church building, even if you already have an existing one. However, stand-alone construction loans have disadvantages.

First, there’s no locked-in mortgage rate for this construction loan, the rate floats based on an index and margin. Secondly, it involves two loan transactions and sets of closing costs. As such, if you need a permanent mortgage, taking a stand-alone construction loan will be more expensive than construction-to-permanent loans.

2. Construction-to-Permanent Loans

Construction-to-permanent loans (C2P loans) finance the land and construction of a building, then it turns into a permanent mortgage upon completion. Construction-to-permanent loans are also referred to as single or one-time close construction loans. That’s because, unlike stand-alone construction loans, construction-to-permanent loans allow the loan to immediately turn into a permanent loan when the construction is completed.

Furthermore, this loan provides short- and long-term construction funding. This lets you enjoy locked-in mortgage rates while saving time and money. Your mortgage duration will depend on the initial deposit and your capacity to make monthly payments.

How Will a Church Building Loan Benefit Me?

The most obvious reason for taking a church building loan is to expand and your ministry.  Whether you want a brand-new structure or an expansion, you will make monthly payments.

Besides the reduced financial pressure, these are the other advantages of taking church building loans:

  • Zero delays on church building projects
  • More time to focus on other essential aspects of church administration
  • Tailor-suited loans

What Steps Should I Take When Applying for a Church Building Loan?

Taking out a loan to construct a new church building or expand one requires you to take these steps:

●     Establish Your Budget

As with every other type of loan, it’s important to first draw up an accurate estimate of what you’ll need. This is to avoid the problem of borrowing too much or too little.

You’ll get stuck with an incomplete project when you borrow less money than you need for your building. You’ll also have to repay the loan while thinking about how to forge ahead. Meanwhile, borrowing more than you need may leave you with a larger debt than you need. 

●     Get Your Profit and Loss Statements Ready

The next step towards acquiring a church building loan is providing your church’s profit and loss statements. These financial statements summarize the borrower’s revenue, expenses, and costs for the period in question.

Many lenders require the profit/loss statements for the past few years to assess your financial standing. This will significantly influence their decision to finance the building project. That’s because the report helps lenders know whether your church can repay the requested loan in time. It’s also a way of safeguarding your church from bankruptcy.

●     Apply for the Loan

After taking the steps above, it’s time to apply for your church building loan. Note that acquiring a loan isn’t always an easy or fast process.

Here’s a summary of the documents you need to process your church building loan:

  • The church’s budget
  • Profit and loss statements
  • Balance Sheets
  • Church’s accounts/financial report
  • Loan application

Pro tip: If you want a more hassle-free loan application process, be sure to hire a specialist. They’ll take the strain and stress off you while helping you get the best church building loan rates.

What Is the Average Church Building Loan Rates?

Knowing the current church building loan rates will help you shop for the best offers. Unfortunately, there’s no clear-cut method of determining the rates your lender will propose.

Numerous factors may influence your church building loan rates. The most common ones include the following:

●     Loan Size and Length

The money you need for your building project is one factor used to determine your interest rates. Generally, your rates will increase slightly if you ask for an amount over a specific threshold, say, $500,000.

Lenders also consider the duration within which you must pay your loan when fixing interest rates. Short-term loans typically result in better rates than long-term loans.

●     Credit History

As we mentioned above, risks determine interest rates. The less credit history your church has, the riskier it is for a lender to finance your building project. That’s because they can’t accurately determine how likely the church is to repay the loan. As such, your interest rates will be higher to reflect the risk.

Note, however, that while credit history is always important, some loan providers wouldn’t require something substantial. That’s especially if you take a secured loan. With security, your lender will have some assurance that you’ll repay the required amount as agreed.

●     Loan Type

Are you requesting a fixed or variable loan? Are you asking for a stand-alone construction loan or a construction-to-permanent loan? The answer to these questions will determine your church building loan rates. For example, as mentioned above, churches taking a secured loan will likely pay less than those going for unsecured loans.

●     Available Documents

Lenders want to trust that borrowers will repay the loan they have borrowed when due. So, they’ll require you to prove your financial standing and creditworthiness through various essential documents. The more records you can provide, the more likely they trust your assurances. As such, they may finance your building project with low-interest rates.

However, the opposite is true when you don’t have enough documents to prove your assertions. In such cases, lending your church money is a considerable risk. As such, your church building loan rates may be higher.

Finally, while there’s no fixed interest amount for church building loans, most rates fall between 5% and 7% as of 3/3/2023. However, some lenders may go as high as 8%, depending on the factors we’ve already discussed.

How Does the Federal Reserve Interest Rate Hike Affect Church Loans?

Due to persistent inflation, the Federal Reserve has increased the target federal funds rate for the 8th consecutive time. This action has significantly changed the financial landscape for all individuals and organizations, especially those with existing loans or who want to take one.

church loan rates

The Federal Reserve is the USA’s central bank and has a mission to regulate the country’s economy and monetary policy. One of the ways it does this is by raising the federal fund rates (interest rates) to curb inflation. As federal fund rates increase, commercial banks also increase their charges for short-term loans. This helps to cool down inflation by reducing the demand level for goods and services.

Unfortunately, while higher federal funds rates control inflation, it also adversely affects borrowers by increasing borrowing costs.  This means churches needing loans to finance their building projects will pay more due to higher interest rates. Consequently, this makes borrowing or refinancing existing debts less attractive.

Does My Church Qualify for a Building Loan? 

Merely needing church building funding doesn’t automatically mean lenders will grant your loan application. Creditors always evaluate their risks and chances of profit before giving out loans.

Generally, your church must possess these qualities to be eligible for building loans:

  • Incorporation status
  • No outstanding loans above 80% of the value of the property
  • Stable or increasing attendance over the last few years (typically 3-5 years)
  • The church must have existed for at least three years
  • The church must have all its existing financial responsibilities updated or current

How Much Can My Church Borrow?

How much money your church can borrow depends on numerous factors. One is how much of the church’s financial information you make accessible to the lenders.

All things being equal, a church can borrow about between three and six times its gross offerings and tithes. This maximum loan amount is calculated before the expenses but is not the ultimate determining factor of if a church will qualify for a loan.

What About Debt Service Coverage Ratio?

The Debt Service Coverage Ratio is the percentage of net income required to pay your gross monthly debts. In other words, DSCR compares your debts to your net income. DSCR is important because lenders use this to assess your church’s borrowing risks. Generally, you should have a minimum DSCR of 1.30 but there are times when 1.0 is acceptable.

The higher your church’s DSCR, the more attractive it becomes to the lender. That’s because a high DSCR shows the church has more than enough income to service its debts.

Best Practices When Shopping for Church Building Loans

Observing these best practices will increase your chances of favorable church building loan rates:

●     Understand the Terms

Making decisions about your loans is almost impossible without understanding the terms. More than just understanding terms, be sure they mean the same thing to you and your lender.

For example, some lenders say “balloon note payments” when they mean “fixed rate loans.” This can mislead you into making the wrong choices if you don’t clarify their meaning.

●     Borrow What You Can Afford

Another best practice when shopping for church building loans is never to borrow more than you can pay back. So, when determining your borrowing capacity, remember to consider your normal tithes and offerings. Avoid using designated income that was raised for other purposes and cannot be used to make loan payments.

Final Thoughts

Most times, because finances aren’t readily available to fund your church building project, you may have to take a loan. There are different types of church building loans to explore. However, you’ll need all the information you can get about church building loan rates to make the best choice.

Is this your situation? Then, this article has provided all you need to make the right decisions concerning loan rates. If you need more tailor-suited advice, then call 800-710-6762, to speak with one of our loan officers today!

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