Jeff Palmberg faced a dilemma.
The veteran youth pastor had been called to a new church near Seattle, a great opportunity for him and his family. The congregation welcomed them with open arms and wanted them to live near the church.
But housing prices in the community were beyond the pastor’s means. Even a modest home could cost more than $800,000. So, the church offered to help—lending Palmberg enough money for a down payment on a home his family could afford.
That kind of sticker shock is not uncommon for pastors, said CPA Rob Faulk, a partner with CapinCrouse, especially in major cities or other high-priced areas. In response, sometimes the church loans the pastor money for a down payment, while in other cases the church and pastor own the property together. Such arrangements can seem especially appealing right now: housing prices in most markets continue to climb nationwide, and the constitutionality of the housing allowance benefit for ministers remains a question mark, due to ongoing court challenges.
But both loans and co-owner partnerships require caution. Such arrangements can be risky, said Faulk and Frank Sommerville, an attorney, CPA, and editorial advisor for Church Finance Today.
We recently spoke with Faulk and Sommerville about how loans and co-owner partnerships can work—and the challenges churches and pastors face with both approaches.
Why would pastors and churches consider purchasing a home together as a joint investment or some kind of joint ownership?
Sommerville: In certain high-income areas, churches cannot or will not pay a sufficient amount of salary to allow that pastor to buy a home in the community. So, you have this disconnect between the church’s desire, the cost of living, and the pastor’s finances. We’ve seen it most in major metropolitan areas like Chicago, New York, Silicon Valley, and similar areas. We offered legal guidance recently for a church in a community where the lowest priced home for sale was $1.6 million.
The church could buy a home to use as a parsonage—but that can backfire on the pastor. For many pastors, one of their largest assets when they retire is their home. If they are in a parsonage, they don’t benefit when the property appreciates and they have no place to go when their employment ends. So, they’d prefer to own a home. But in some cases, the economics don’t work.
Faulk: California is another area where pastors have had that sticker-shock problem. I have seen cases where a church will, in essence, lend the pastor the funds for a down payment and the pastor will then go out and get a mortgage. I’ve also seen churches that are willing to co-invest with a pastor. So, if a home costs $300,000 for example, the pastor may put up $100,000 and the church will put up the rest. In that case, the pastor would own a third of the house—and the church owns two-thirds.