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Monthly Archives: February 2016

What is a home improvement loan?

A home is one of the biggest investment you can make in a lifetime. This refers not just to the cost of the property and land itself, but also to maintenance costs. To maintain or build a home's value, homeowners will be required to spend on renovations and upkeep.

But what if you do not have the excess income to spend on a major renovation? That's where home improvement loans can help. 

"To maintain or build a home's value, homeowners will be required to spend on renovations and upkeep.


What is a home improvement loan?


A home improvement loan is, as the name implies, a loan made for the express purpose of allowing a borrower to upgrade their home. Typically, you are borrowing against the equity currently in your home, thus have a similar process of approvals as a mortgage refinance

They are different from other loans like a home equity line of credit (HELOC), these loans are not open-ended and typically are for a defined period of time shorter than a mortgage — between five and ten years.

Is the Economy Good or Bad?

Unemployment is 5.5%.

Millennial underemployment is around 40%.

The Federal Reserve Bank of Cleveland puts the chances of a 2016 recession at just 6%.

US oil and gas has lost 70,000 jobs since Oct 2014.

Today’s economy has an identity crisis. It doesn’t know if it’s a bull or a bear. Housing is following suit, with positives and negatives locked in a tight bout, though the positives seem to be winning.

Home sales at the end of 2015 were between 5.4 and 5.5 million. These aren’t close to the foreboding numbers seen from 2004-2007, and instead reflect the pre-bubble years. “We’re not seeing the flow of new delinquencies,” says Jane Fraser, CEO of US Consumer Banking. If we’ve learned anything over the last 10 years, it’s what a bubble looks like, and we’re not in one. This is one reason why the Federal Reserve Bank of Cleveland has the probability of recession at 6%.

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Even the bad comes with promise. For example, as Millennials procrastinate on home ownership (setting up years of future growth), housing has stayed strong.

How strong?

The Federal Reserve reports that home equity in the U.S. has doubled to $12.1 trillion since the housing price low in 2011.

Yet according to Moody’s Analytics, every $1 increase in home equity in the fourth quarter of 2014 resulted in two cents of extra consumer spending over the next year-and-a-half – one third what it was before the housing crisis. Consumers may not know which direction the economy is going, but numbers show that they don’t feel good about it, and who can blame them? A trip around the world reveals a volatile global economy with countless tentacles, some which could reign blows on the US economy in the minds of the public. But what are these threats, and are they really a threat to housing?

Home loans with low or no down payment required

Borrowers with limited funds available for the traditional 20 percent down payment still have the chance to qualify for home financing. There are a variety of mortgage and mortgage refinance options that allow buyers to qualify while paying a very small down payment — or in some cases, no down payment at all. Here is a guide to a few of these options:

VA loans

These mortgages are backed by the VA and require no down payments for U.S. armed forces veterans who qualify. No mortgage insurance is required, which is rare for low-down payment loans, with the buyer paying a simple, one-time funding fee, which averages 2.5 percent of the principle and can be rolled into the loan amount.

The benefits of an investment property

While some homes are bought to be lived in, others may serve another purpose. For those looking to earn income out of owning a certain property, an investment property mortgage can help you afford a home that will both accumulate equity and be an important revenue stream. Here are few of the ways owning an income property can be highly beneficial.

You get to be your own boss

Owning an investment property is like being an entrepreneur. You get to call the shots, deciding the decor, what you will charge in rent, who you will rent to and more. You are in complete control of what you choose to do with the home.

Income from rent goes straight to you

Once you have purchased the property, renting it can become a major source of income. Rents nationwide and rising faster than mortgage rates, meaning that what you can charge for rent should be able to more than cover the mortgage payments. Just remember to save between 5 and 10 percent of your rental income for maintenance costs.

Your tenants amortize the loan and build equity

If you opt for a 30-year fixed rate mortgage, your interest rate will remain steady throughout the time you own the loan. That means that your payments will go towards paying off the principle and the interest. Through renting a property, you can tackle both without paying out of pocket — and even better, every payment you make builds equity and means you owe more of the home. So even if you are only covering mortgage payments with rent, you are still essentially making money by the equity built that you can later leverage.

New Penn Financial is here to help you get the best rates on an investment property loan. Call us today to find out more.

Market Preview: An Important Economic Driver is Sputtering

The start rate has been declining for three months now. Permits for single-family homes increased an anemic 1.6%. Multi-family permits rose 2.1%. (Of course, multi-family includes a lot of apartment rental construction.)

As a result, the NAHB home builder sentiment index dropped three points to 58 this month. This is the lowest reading since May 2015. The good news is that optimism is still running at over 50 percent. Demand really isn’t the issue; creating supply is. Builders cite a dearth of qualified labor and available lots for the slowdown.

The good news is that the financial markets had an improved week. Stocks have rallied. Commodity prices, oil in particular, have moved higher, as Russia and Venezuela pressure Saudi Arabia into lowering oil production.

Of course, when optimism rises, so do lending rates. We’ve seen the yield on the 10-year U.S. Treasury note rise nearly 15 basis points last week. Mortgage rates have trended higher. This isn’t a negative, though. Rising rates are tethered to rising financial-market expectations and rising consumer confidence.

The struggle of student loan debt, and what can be done

Touching nearly every American at every level is the crisis that is student loan debt. As college education has become an important requirement for most well-paying jobs, the cost of higher education has grown dramatically over the last several decades. Americans now owe a total of nearly $1.3 trillion on student loans — with roughly seven million borrowers currently in default, and millions more behind on their payments. 

Borrowers with high amounts of student loan debt have been reported to be reluctant to purchase homes, leading to renting longer than may be financially prudent. And the problem isn't simply one for young people fresh out of college: The amount of student loan debt reported by people over age 60 has risen a whopping 850 percent over the last decade, hitting a peak of $43 billion. This has been aided by a tough economy and relatively low earnings for many Americans. 

Recent changes to FHA eligibility you should know about

Over the last year, the Federal Housing administration has announced several notable changes to their FHA loan program. The government sponsored program is designed to expand the availability of home financing for those who might not otherwise qualify and make it easier to afford a home.

These changes will impact not only eligibility but the way that FHA loans are implemented. Here is a guide to the major changes made to FHA loans you should know about.  

FHA will no longer exclude student loan payments deferred over 1 year

This was a huge benefit for Americans struggling with student loan debt, but new guidelines means that, if you have deferred payments on student loans for over a year, the payments you have made will factor into calculations related to your FHA loan payments and debt ratio differently.

Housing is Strong. Why are Condos Struggling?

It sounds like a golden age for condos.

There are 76.4 million baby boomers out there, and a handful of them – 3.9 million and growing – are empty-nesters who have moved from their oversized homes to the popular 55+ condo/townhouse communities.

On top of that, US cities bled residents out to the suburbs from 1950-2000, but the 21st century has suburbs giving cities transfusions of new life. Chicago, New York City, and Philadelphia – 3 of the 5 largest cities in the country – each gained more residents from 2010-2013 than they did the entire previous decade. Smaller cities like Charlotte, Pittsburgh, and Oakland are going through transformations as well. As a shift towards the walkable, high density neighborhood has these and other cities beginning an ascent that could last decades, the condo market should be preparing for liftoff.

It’s not.

That’s not to say housing is struggling. At the end of 2015 the National Association of Realtors (NAR) reported that the six month outlook for single family homes was strong in 48 states. One reason is that the FHA is offering a great deal to customers in single family homes.

In the same report, the NAR described the condo market as “weak” in 41 states. Why? The FHA has made it nearly impossible to buy a condo.

Getting an FHA loan on a condo has always been tricky. With a single family home, only the buyer needs to be approved. In a condo, both the buyer and the condo association need to be approved. Pushing matters towards impossibility, the FHA invoked two, devastating new rules on condo residents and condo associations several years ago which forced the industry into decline:

Tips for preventing frozen water pipes

As temperatures start falling, your home runs the risk of pipes freezing. A frozen water pipe is no small inconvenience: besides reducing healthy water flow to a trickle, as the water cools and expends, pipes run the risk of bursting. A burst pipe can cost you serious money when it comes fixing the pipe and the water damage.

To avoid the expensive disaster caused by frozen pipes, follow these simple tips:

Before winter

Drain all outdoor and underinsulated pipes completely and turn off water flow from the main source. Do not fill the pipes with antifreeze as it is poisonous and could leak into your water supply.

For indoor pipes in unheated areas, wrap pipes with heat cables, heat tape or pipe sleeves to preserve warmth. A heater lamp can also work to keep pipes flowing.

Market Preview 2.16 Rates Keep Sinking


Rates are somehow finding room to sink even lower. Last week, the 10-year U.S. Treasury note chipped off another 15 basis points, putting the yield on this long-term lending benchmark below 1.75%. The rate on a prime conventional 30-year mortgage will hover two percentage points higher (give or take a few basis points) than the yield on the 10-year note.

Lower lending rates have been good for business. The Mortgage Bankers Association’s latest survey shows refinances up 16% week over week. A meaningful gain was also reported on purchase applications, which were up 7%. When the MBA reports for this week, we expect to see a further increase in weekly activity.

However, non-existent interest rates are having an impact beyond housing. Bloomberg reports that $7 trillion of sovereign government debt, roughly 30% of all government debt worldwide, now yields a negative interest rate. This means many investors aren’t even seeking a return; they’re simply seeking a place to warehouse their cash.

Low rates are nice, but economic confidence would be even nicer.