Financing Options For Church Construction Trance Your Mission With Secured Loan 80 20 Loans Explained Home Equity Loans For People With Poor Credit Get A Hassle Free Home Equity Loan Secured Business Loans Source Of Funds To Establish Your Own Business
Financing church construction is, for some churches, a very easy task while for others it is a source of never-ending frustration. We could expound on some of the factors that might place your church in one group or the other later, but let’s instead review the three major methods of funding church construction, along with their benefits and drawbacks.
The three major methods of funding (in part or in whole) church construction are conventional lending, bond offerings and capital stewardship campaigns.Of the first two, loans and bonds, each is available in a variety of “flavors”. While it is true that capital campaigns can be used as a funding source, they are more infrequently done as the sole funding source than loans or bonds. Capital stewardship campaigns are typically done in conjunction with a loan or bond. More on that later…
A conventional loan is one where you will go to a direct lender or broker and get a construction loan based on the future value of the facilities you are going to build, using your assets as collateral. In a conventional loan, you are essentially borrowing all the money from one lender. Construction loans usually can be easily converted into mortgages at the end of construction. Many lenders will allow you to do this without a separate closing at the time the loan converts.
A bond is a (generally) public offering for many people to “loan” you money by purchasing bonds. Your church would deal with a bond company who specializes in putting together and promoting the offering and as they sell the bonds, the money becomes available to your church.
For both conventional loans and bond offerings, the amount of money that you can borrow is going to be limited by your current income and cash flow. One of the common financial rules of thumbs is that the church can only afford to borrow (read “will only be able to borrow”) between 3 and 4 times their current earnings. If the total church income for the year is $150,000, your borrowing capacity is probably only $450,000 to a maximum $600,000. Other factors that can affect your borrowing capacity are cash flow and equity. Regardless of bond or loan, the lenders are going to need to be able to see how you will make the payment from your current cash flow.
It is one thing to get a loan, it is quite another to retire it. With very rare exceptions, shame on the church that takes 20 years to retire a loan! Most churches should have a workable plan to retire their debt in 7 years. Interest is money that the church gives to the world to foster the world’s economy. That money should stay in the Kingdom to finance Kingdom work. This brings us to our third form of financing, Capital Stewardship.
A capital stewardship campaign will typically raise between 1.5x and 3x your church’s current total income, over a 3-year campaign period. Over the past several decades, thousands of churches have executed professionally facilitated campaigns. The result is a large statistical universe from which we learn that the majority of these churches raise the 1.5 to 3 times their current income: an analysis that mirrors my own experience in working with churches. There are 3 ways that a capital campaign can help fund a building program. Some churches may desire to avoid debt and to save up for construction. Others may opt to augment their borrowing capacity with additional funds from a stewardship campaign. Lastly, many will choose the middle road of using a capital stewardship campaign to pay off their debt as quickly as possible. This third method is the most prevalent.
A capital stewardship campaign should easily pay off
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Nearly half of all first-time homebuyers financed the entire cost of their home, rather than paying a hefty down payment. And many of these zero-down buyers did so thanks to the so-called 80/20 mortgage plan. This is a relatively new type of loan that was especially designed to help buyers who want to avoid paying down payments. As housing prices have skyrocketed, more and more buyers with good credit and strong income find that they cannot afford a home because of the difficulty in saving up enough to make the large down payment. On a home worth $200,000, a 20 percent down payment is a whopping $40,000. To respond to this challenge, mortgage companies began offering the 80/20 option.
Sometimes the 80/20 is referred to as a “piggyback” loan, because in reality it is two loans working in tandem as one. The first part works in a conventional way, and is for 80% of the purchase price. The 2nd part – the smaller one – is a 20 % loan. So when you apply for your mortgage, the lender actually qualifies you for 100 percent of the purchase price of your home, and then divides the loan into two sections.
For example, if you want to buy a house worth $100,000, the down payment of 20 percent will cost $20,000. With an 80/20 mortgage, the lender gives you $80,000 at one interest rate, and then gives you the 20 percent down payment of $20,000 at a somewhat higher rate, for a grand total loan amount of $100,000.
The reason for splitting up the mortgage into two distinct parts is to help you qualify for the loan without a down payment. Normally you have to put 20 percent down to get a conventional 80 percent loan, so with this rather clever mortgage plan, the lender is letting you borrow your down payment. Then the same lender can turn around and let you borrow the rest of the loan.
Yes, it does sound a little bit contrived, and it is indeed a rather complicated way to arrive at a basic mortgage. But what really counts for those trying to avoid a big down payment is that it works, and helps to overcome the down payment hurdle.
You can expect to pay higher rates on the down payment or 20 percent portion of the loan. But the rates are still reasonable, and this loan arrangement allows you to buy without first saving massive amounts of money to use for your down payment. Later, if you decide to pay off the 20 percent loan to lower your monthly payments, that is an option available to you. Many homeowners refinance once they have had a few years to increase their equity, and convert their 80/20 into a more traditional type of mortgage.
Even with poor credit, your options for getting a home equity loan are numerous. Home equity loans are different from other types of personal loans. For starters, these loans are secured. Lenders prefer this factor because it’s easy for them to recoup their money if the loan defaults.
Understanding Home Equity Loan Options
When applying for a loan using your home’s equity as collateral, there are several options. Homeowners with poor credit may take advantage of a home equity line of credit. Similar to credit card cash advances, homeowners are approved for a line of credit up to a dollar amount not to exceed their home’s equity. Homeowners are free to withdraw funds as needed. The money can be used to payoff debts, repair an automobile, or make home improvements.
On the other hand, a home equity loan is disbursed as a lump sum of cash. Similarly, the funds may be used for large expenses or major home repairs. Both home equity options must be repaid. Home equity loans have fixed terms, whereas home equity lines of credit are available for a specific length of time.
Pros and Cons of Home Equity Loan Options
A home equity loan and line of credit are beneficial because they provide extra cash when you need it. Furthermore, if you have bad credit, maintaining regular payments will boost your credit score. If the funds are used to consolidate debt, homeowners can get on the road toward becoming debt free and boosting their credit score. In fact, many people obtain a home equity loan as a means of improving their credit rating.
The pitfall most common of home equity loans is the inability to repay the money. Sadly, some people cannot handle credit or money responsibly. Thus, once debts are consolidated or paid off, some people accumulate additional debts. The smart maneuver would be to close paid accounts, which would alleviate the temptation to use a credit card.
After incurring additional debts, some people are powerless to continue regular payments. If you acquire a home equity loan, there are multiple liens against your house. Consequently, either lender may foreclose. By defaulting on either loan, you risk losing your home.
Current Mortgage Lender vs. Sub Prime Lenders
When choosing a mortgage lender, do not rely on your current lender to offer the best rates. Getting a quote from your lender is ideal; however, you should also request quotes from new lenders. Banks or credit unions will not offer the lowest rates to persons with poor credit. Nevertheless, you can attain comparable loan rates by using a lender that specializes in bad credit loans. Sub prime lenders have convenient online applications and instant approvals. If using a mortgage broker, you will receive several sub prime loan offers within seconds.
The term business seems so simple. But, do you know how much efforts are required to start and establish a business. A well-established business showcases the hardship, dedication and capital investment made by an entrepreneur. Are you one of them who want to rule the world and are tired of the orders of your boss? If yes, then it’s great; most of us want the same. But, whenever you evaluate the investment needed, it made you back out from the business plan. No need to despair any long; now you can borrow a secured business loan to secure your business dream.
Business loan come in two main forms – secured business loan and unsecured business loan. Now, you would think why I suggested you secured loan despite of other loan alternatives available. There is a strong reason behind it, I am here to suggest you the best option and that’s what I did. A secured business loan requires a borrower to put collateral against the loan borrowed. Collateral, which a borrower needs to keep, can be in the form of a house, car, savings account or any other property owned by the borrower.
A secured business loan is a package of everything perfect. It offers a loan for a longer term, which can be extended up to 30 years in some cases. A borrower can borrow a secured business loan for a larger amount which can range between.
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