How should a pastor choose between living in a parsonage provided by the church and living in his or her own home with a housing allowance provided by the church?
Matt asks:
My wife and I may shortly be in the position to pick between a wonderful parsonage and a housing allowance. Unfortunately, I cannot find any math on how to make this decision. I’m looking for something that helps me balance the benefit and savings of a parsonage vs the costs and equity of owning a home. Do you know of any resources like this? Thanks!
Matt, thanks for reading Money Wise Pastor, and thanks for your email! If you are just starting in a new position at a church…congratulations!
Things are fairly simple to calculate at face value. For example, let’s assume the church pays you a salary of $45,000…
- Parsonage – The church determines the rental value of the parsonage you’ll live in. Let’s assume the rental value is $10,000. The church subtracts $10,000 from your $45,000 salary, and you receive actual cash compensation of $35,000. You are not responsible for the expenses related to the upkeep on the home. And you have no chance of building equity.
- Housing Allowance – You determine the “fair rental value” of the home you might purchase – what it would be worth, furnished, if you rented it out. Let’s assume the fair rental value is also $10,000 (but it could be more or less, depending on the home), so you request and receive a $10,000 housing allowance from the church. In this case, the church pays you the full $45,000; however, $10,000 is considered your housing allowance and $35,000 is considered actual compensation. You are fully responsible for all the expenses related to the upkeep of your home (which could exceed your declared housing allowance). You’re also likely eligible for the mortgage interest tax deduction. And you will hopefully have an asset that will build equity.
But that’s where the easy calculations end. Because naturally, every circumstance is different. And several variables are in play here:
- Your long-term goals – Do you want to eventually own your own home?
- The economy and housing market in your community
- How long you’ll be ministering in that church and community
- Your personal financial situation – how much savings and debt you have
- How much of a downpayment you can make
- The cost of your mortgage, taxes and insurance in relation to your other expenses and obligations
A church-provided parsonage may be better financially if…
If you think you’ll only be in that church or community for 2-3 years, and if the economy is down and the housing market is soft where you are…it might make more financial sense for you to live in the parsonage. Because if you buy a house and move within a couple of years while the market is still down, you may lose money.
A housing allowance may be better financially if…
If you’re pretty sure you’ll be there longer than 3 years, make a wise house purchase (not buying more than you can reasonably afford), and don’t think you’ll be forced to have to sell your home quickly or in a down market (of course, that’s hard to predict), then taking the housing allowance to purchase a home probably makes more sense.
I don’t know where you live, but in many communities across America, housing prices are currently at 10-15 year lows, and you can really find some great deals. And on top of that, mortgage interest rates are still very low.
Non-financial benefits to pastors owning their own home
Of course, there are non-financial benefits to consider too, when deciding between living in the church parsonage or owning your own home.
Nearly every pastor I’ve talked with has told me that they’d rather own their own home than live in a parsonage. And not just because of the financial opportunity to build equity.
The biggest factor for them is that when pastors own their own home, they get to make their own decisions. Whereas in a parsonage, they have to often rely on deacons or trustees to give the OK to make changes…and get around to doing them.
And while owning your own home can be stressful at times, there is a sense of peace when you know that the house you live in is yours and is an asset that is (hopefully) worth something. And this becomes more important the closer you get to retirement.
What if clergy housing tax benefits go away?
Perhaps the biggest unknown is this: Will Congress do away with the clergy parsonage and housing allowance provisions at some point? Changes to the clergy housing allowance may be on the horizon.
If the church-provided parsonage were to become a taxable benefit for pastors someday, and if the clergy housing allowance was ever eliminated, I think it would make even more sense for pastors to own their own homes (provided they’ll be there long enough to build up equity…which is never a guarantee).
So, Matt, the answer on whether to live in a parsonage or own your own home is: it depends. I’ll pray that God will give you guidance and clarity as you decide which option is right for you at this time.
Does anyone else have a thought or suggestion on how to choose between a parsonage and housing allowance?
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