Government shutdowns are more than just political gridlock—they can directly impact your ability to secure a mortgage or close on a home. From delayed loan approvals to disruptions in verifying essential documents, shutdowns can cause headaches for homebuyers and homeowners alike.
If you’re planning to buy or refinance during a government shutdown, understanding how it can affect the mortgage process will help you prepare and navigate potential roadblocks.
Why Does a Government Shutdown Affect Mortgages?
A government shutdown occurs when Congress fails to pass a budget or temporary funding measure, causing non-essential federal operations to pause. This can have a ripple effect on services and programs critical to the mortgage industry, including:
- IRS Verification: Lenders require tax transcripts from the IRS to verify income. During a shutdown, delays in processing these requests can slow down loan approvals.
- Social Security Verification: Verifying Social Security numbers is another essential step in the mortgage process. A shutdown may impact this service, delaying loan underwriting.
- FHA, VA, and USDA Loans: These government-backed loan programs rely on federal employees to process applications. A shutdown could lead to backlogs, postponing loan approvals for weeks.
Common Mortgage Delays During a Shutdown
Here are the most common ways a government shutdown can affect the mortgage process:
- Loan Approvals Slow Down Conventional loans backed by private lenders may face minimal delays. However, FHA, VA, and USDA loans, which rely on government involvement, are often impacted the most. For example:
- FHA Loans: Processing delays occur because many FHA employees are furloughed.
- VA Loans: While some VA loan operations continue, non-essential services may pause.
- USDA Loans: These loans can grind to a halt, as the USDA stops issuing guarantees during shutdowns.
- Income Verification Issues Mortgage lenders require IRS Form 4506-T to verify your tax returns. During a shutdown, IRS staff may not process these forms, leaving lenders unable to confirm your income. This can halt loan underwriting until the government reopens.
- Appraisals and Inspections In some cases, appraisals and inspections for government-backed loans might be delayed if federal employees oversee or coordinate these steps.
How to Prepare for a Shutdown
If you’re planning to apply for a mortgage or close on a home during a government shutdown, taking proactive steps can help minimize disruptions:
- Submit Documentation Early Work closely with your lender to provide all required documentation, such as tax returns and pay stubs, well in advance. Early submission can help your lender process your loan before a shutdown impacts operations.
- Consider Conventional Loans If you’re eligible for both a conventional loan and a government-backed loan, opting for the conventional route may reduce delays caused by a shutdown.
- Be Flexible with Timelines A government shutdown may require extending your closing date. Discuss potential delays with your lender, real estate agent, and seller to avoid unexpected complications.
The Impact on Refinancing
For current homeowners, refinancing a mortgage during a government shutdown can also present challenges:
- Delays in Income Verification: As with new loans, the inability to verify tax returns can stall refinancing applications.
- Interest Rate Risks: Shutdown delays may cause you to miss a favorable interest rate, especially if rates are rising.
Using tools like our Refinance Calculator can help you evaluate whether refinancing is worth pursuing during uncertain times.
The Long-Term Effects of Shutdowns
Even after the government reopens, the backlog created during a shutdown can extend delays for weeks or months. Federal agencies must catch up on missed work, causing bottlenecks that impact borrowers long after the immediate crisis ends.
Key Takeaways for Homebuyers
While government shutdowns can be frustrating, preparation is your best defense against potential delays. Here’s how you can stay ahead:
- Communicate with Your Lender: Stay in close contact with your lender to understand how the shutdown might affect your loan application.
- Have a Backup Plan: Be prepared to provide alternative documentation or explore different loan options if delays arise.
- Stay Informed: Monitor news about the shutdown and its impact on federal services relevant to mortgages.
The Bottom Line
Government shutdowns add uncertainty to an already complex process, but understanding their impact can help you plan accordingly. Whether you’re applying for a mortgage, refinancing, or preparing to close on a home, staying proactive and informed will ensure you’re better equipped to handle delays.
While shutdowns are temporary, the lessons learned from navigating them can provide long-term benefits for managing your finances and making smarter decisions. Use our Loan Compass Tool and Loan Watch Tool to find the best mortgage options and stay ahead of the curve, even during challenging times.