With the possibility of a federal government shutdown looming, many Americans are wondering whether their plans to purchase a home or refinance an existing mortgage could be derailed.
The good news: most mortgages will continue to move forward even if government agencies temporarily close. However, there could still be delays for certain borrowers, particularly those applying for government-backed loans or needing specific federal verifications.
Conventional Mortgages Will Largely Be Unaffected
The majority of mortgages in the U.S. are issued by private lenders, including banks, credit unions, and mortgage companies. Housing experts say these conventional loans should continue without major issues during a shutdown.
“If you’re expecting to close in a week or a month, there could be some slight delay,” explained Jeff Ostrowski, a housing analyst at Bankrate. “But for most people, it’s probably going to be a blip more than a real deal killer.”
Impact on Government-Backed Loans
The potential challenges lie with government-insured or guaranteed loans, which make up nearly one-quarter of all U.S. mortgage applications.
These include loans offered through the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA).
- FHA Loans: According to the National Association of Realtors (NAR), the FHA will continue to approve most single-family mortgage loans during a shutdown. However, furloughed staff could slow processing times.
- VA Loans: The VA will keep guaranteeing home loans, but similar staffing shortages may lead to delays for veterans and military families.
- USDA Loans: The USDA is expected to halt the issuance of new direct and guaranteed loans entirely. Pre-scheduled direct-loan closings would also be postponed, which could cause setbacks for homebuyers in rural and smaller towns.
Holden Lewis, a senior writer at NerdWallet, noted that while a shutdown is stressful, it has historically not stopped FHA or VA programs entirely. Still, veterans and rural borrowers are advised to check in with their lenders for updated timelines.
Fannie Mae and Freddie Mac Loans Could See Bottlenecks
Fannie Mae and Freddie Mac, which support about 70% of the mortgage market, do not rely directly on federal funding and therefore continue operating during shutdowns. However, they may encounter bottlenecks due to dependencies on federal agencies.
For example, lenders often require IRS tax transcript verifications before finalizing a mortgage. If the IRS closes or cuts back these services, Fannie and Freddie may not be able to complete the final verification, delaying some closings.
Flood Insurance Could Be a Major Obstacle
One area where shutdowns can create real hurdles is flood insurance. Anyone purchasing a home in a designated flood zone with a federally backed mortgage must secure coverage through the National Flood Insurance Program (NFIP), administered by FEMA.
A government shutdown would suspend FEMA’s ability to sell new or renewal flood insurance policies. That means thousands of Americans could find themselves unable to close on homes in high-risk areas.
“The government shutdown could complicate your closing because it might be harder to secure flood insurance,” Ostrowski explained.
According to the White House, if NFIP authorization lapses, many homeowners would not be able to renew, transfer, or purchase required flood coverage.
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Should Borrowers Be Worried?
Experts emphasize that while most homebuyers will only encounter minor inconveniences, certain groups face greater risks. These include:
- Veterans applying for VA loans
- Buyers in rural areas seeking USDA loans
- Homebuyers in flood zones needing NFIP coverage
- Borrowers whose lenders require IRS tax transcripts for income verification
For these groups, the best advice is to stay in close communication with your lender. Many banks and credit unions have contingency plans to minimize the impact of shutdown-related slowdowns.
Bottom Line
While the mortgage market as a whole is unlikely to stall during a government shutdown, borrowers seeking government-backed loans or flood insurance should prepare for possible delays. If you’re planning to close soon, it’s wise to ask your lender whether your application depends on federal processes that could be interrupted.
A government shutdown may not completely stop the home-buying process, but it could add stress and uncertainty at an already critical time.
What do you think? Could a government shutdown affect your home-buying plans? Share your thoughts in the comments at cheapnailsalonsnearme.com.