Religious congregations don't live on faith alone. They need money to put roofs over their heads.

Many congregations borrow money to build or buy churches, synagogues and temples. While home mortgages and church loans share similarities, they have significant differences, too, says Karl Dietz, who helps Southern Baptist churches obtain financing. The differences can fluster unwary flocks.

"A lot of times, unfortunately, people are going to say, 'It's just like when I got my home loan,'" Dietz says. "There's a huge difference between the two. The majority of your banks that deal with churches on a regular basis have a keen awareness and desire to work with the local church, and they'll help the church committee work through the process."

Dietz is director of the church finance ministry of the North American Mission Board of the Southern Baptist Convention, the nation's largest Protestant denomination. The Atlanta-based ministry lends directly to Southern Baptist congregations and advises member churches that borrow from banks. Advisers might help a church design a capital campaign, for example, or help the congregation figure out how much it can borrow.

The most damaging pitfall is the temptation to go into "financial bondage," Dietz says, explaining that "the Bible teaches that we should be in bondage to no one -- that we should be free in all ways so we can minister to those around us."

If a church borrows more than it can comfortably repay, and has to scale back on ministry programs and missions, it is stifling programs that help to justify its existence.

Sizing up the ministry
When you borrow to buy a house, the lender looks at your debt-to-income ratios -- how much you spend on debt payments as a percentage of income. In the same spirit, a lender to a religious institution looks at the ratio between fixed expenses and tithes and offerings. Generally, Dietz wants a church to spend no more than 85 percent of its income on debt, salaries, utilities and leases. Any more than that, and "it can't be effective in its missions in the community."

The 85 percent figure is a rule of thumb that could vary by lender and by a congregation's circumstances. Cass Commercial Bank, in St. Louis, has a vigorous church-lending program. The size of loan a church can handle depends on a number of factors, says Ken Witbrodt, executive vice president of the bank.

The trick, he says, "is to get enough data where you can start getting a meaningful picture of whether this is a financially healthy congregation."

Among the factors the bank considers are attendance and giving per attendance.

"The hard part," Witbrodt adds, "is building a big enough database to compare churches vs. churches. You can't compare a church's cash flow vs. that of a distributor of industrial pumps."

Religious loan terms
Loans to religious institutions tend to be five-year balloon mortgages based on 20-year amortizations. In other words, the monthly payments are based on a 20-year repayment schedule, but the loan has to be paid off at the end of a five-year term or be refinanced.

There are other ways to pay for a church or temple. A congregation could hire a company to issue bonds. A bond issue costs more up front, but the effective interest rate is fixed for 10 or 15 years. Some congregations prefer that stability. Another way to pay for a house of worship is to save money for a long time and pay cash. That's not a winning strategy if real estate prices are rising faster than interest on deposits.

It used to be that lenders considered church loans risky. Foreclosing on a church brings bad publicity, and it's hard to find any other use for a church building other than its original one. It turns out, though, that church loans are safe, and they're usually paid off early.

"A lot of people feel motivated to keep giving at elevated levels until the loan is paid off," Witbrodt says.

Reflecting demographics, most religious lending in this country goes to Protestant churches. The Catholic Church finances in-house. Witbrodt says he previously worked at a bank that financed a Hindu temple. A Jewish congregation once inquired at Cass about obtaining a loan to build a synagogue, but chose another lender.

Some lenders, such as Cass, have a policy of lending to any faith. One of the country's most prominent religious lenders, Bank of the West of Walnut Creek, Calif., has such a policy. Other lenders specialize in one denomination or creed, such as the Southern Baptist North American Mission Board, and the Evangelical Christian Credit Union in Anaheim, Calif.

"Thou shalt nots"
Whatever one's faith, Witbrodt and Dietz say congregations have to watch out for other pitfalls besides borrowing too much.

One pitfall is expecting too much too quickly. When a congregation wants to build or buy a building, it usually has to start a capital campaign to raise the down payment money. An effective capital campaign often takes months or years to meet its goal.

The congregation should meet with prospective lenders early in the process. It can be hard for a congregation to figure out how much it can afford to borrow, and some fall into the trap of picking out a Porsche on a Buick budget.

"One of our concerns is that churches come to us too late," Dietz says. "The building committee will dream the dream of what they want. They'll hire an architect who will draw the dream, and they'll go to a contractor who will tell them how much the dream will cost. Then they come to us and we have to deflate the dream because it's way beyond their capacity."

A dream building might not hover just beyond a congregation's financial capacity, but beyond its political capacity, too. Religious institutions often require large building projects, with complex permitting requirements. Congregations often have to deal extensively with planning and zoning boards that enforce everything from the sizes of parking lots to building heights. It's more complicated than building a custom home.

Another potential pitfall is hiring a congregation member as the builder. "We've seen that work out, but we've seen it fail miserably," Witbrodt says.

When a member of the congregation does a poor job or suffers delays, "there's a lot of bitter feelings," Witbrodt says.