Saturday, 15 June 2024

What Happens to my Mortgage if There’s a Government Shutdown?

What Happens to my Mortgage if There’s a Government Shutdown?
04 Jan

In the history of the U.S., the government has only shut down 21 times. That makes it a pretty uncommon occurrence — except that three of them occurred in 2018. Unless you’re a federal worker, you’re not likely to be drastically affected by the shutdown.

However, certain government agencies are involved in the mortgage process, so your home loan may be delayed depending on your mortgage type and how far along you are in the process. It’s a good idea to know what will be affected, and what you need to do in case the shutdown lasts for several weeks.

The most important thing to do is contact your lender, whether you are at the beginning of the loan process or at the end, and find out the systems and policies your lender has in effect to handle the processing of your loan during a government shutdown.

What a government shutdown means for different mortgage types

FHA loans: If you are approved for an FHA loan, which is run by the Department of Housing and Urban Development, you may encounter delays with your closing date. HUD will not be fully staffed during a shutdown, resulting in backlogs and delays.

Home equity conversion mortgages (the most common kind of reverse mortgages, also known as HECMs) and Title 1 loans (a type of FHA loan that allows for renovations if you have no equity) may be stalled completely, unless your loan is already in process.       

USDA loans: If you have a USDA loan in process, or are about to apply, you could experience significant delays before and after the shutdown. USDA loans can close during this time, but it will be up to your lender, because the USDA won’t be able to guarantee the loan until the shutdown is over. You can learn more about the USDA loan process on LendingTree, MagnifyMoney’s parent company.

Conventional loans: While Fannie Mae and Freddie Mac are known as government-sponsored enterprises, they are in fact public companies and won’t be affected by the shutdown. If you have a conventional loan in process, there should be no delays your closing.

VA loans: All of the functions related to Veterans Administration home loans will continue as usual. That includes the receipt of disability compensation and pension payments, if you are a veteran using that income to qualify.

What if I am a government employee that has been furloughed by the shutdown?

Don’t panic: Lenders in most cases are able to verify your income with your government-issued pay stubs and W-2s, as well as obtain some sort of written verification through a number of online databases that exist for employment verification by large employers like the government.

If you’re not sure, call your lender and ask them if there is anything special they will need to do to verify your employment before you close.

Parts of the loan process that could affect your closing

IRS transcripts: When you received your loan estimate and initial disclosure documents, you probably filled out a form 4506. This form allows lenders to obtain transcripts from the IRS database to match with the information on your W-2s.

While the guidelines only technically require that your lender has a signed copy of the form in your file at closing, most lenders will want a copy of the transcripts before your closing. Some lenders will make an exception to this requirement, some will not so be sure to find out what your lender’s policy is if you’re approaching your closing date.

Social Security verification: In order to verify your identity, you likely completed a form SSA-89 at the time you received your initial disclosures. Lenders use this form to verify your Social Security number against the Social Security database to confirm you are who you say you are.

Unfortunately, the Social Security system used to validate this information is not available during a government shutdown, creating potential delays, depending on your lender’s closing procedures.

Federal flood insurance: Flood insurance is administered by the Federal Emergency Management Agency and is required if your property is in a flood plain. If it is, your lender won’t be able to close without having proof of flood insurance, and your closing will be delayed.

Be sure to check with your flood insurance company to find out if the shutdown is affecting their ability to provide you with flood insurance.

What to do if your closing or loan process is delayed by the shutdown

  • Make sure your real estate agent and loan officer talk to the seller and seller’s agent: Communication is key to keeping a government shutdown from creating too much stress on your home loan closing. Most sellers should understand this is beyond your control, and as long as they are kept in the loop, they should be OK with giving you more time to close. It’s not likely they will want to cancel the contract, re-market the property and start the entire process over with a new buyer for an event that historically takes a matter of days to resolve.
  • Keep track of your rate lock expiration: Your loan officer should be doing this, but you need to be aware of the lock expiration whether you are buying or refinancing because extending the lock could cost money. Be sure to ask your lender how they will be handling the cost of any potential lock extension.

Stay calm: The shutdown should only last a matter of days

The mortgage loan process can be stressful enough without worrying about whether a government shutdown is going to cause a delay. The good news is the recent history of shutdowns has forced lenders and government agencies to develop shutdown strategies to minimize holdups in your loan process.

The longest shutdown was in 1995 and lasted three weeks, but most of them only last a matter of days before the government powers come to a meeting of the minds.

This post contains links to LendingTree, MagnifyMoney’s parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here


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