In this post, we discuss how the government shutdown is affecting real estate transactions and mortgages.
The U.S. government shutdown is affecting more than just federal employees.
The shutdown is also affecting some homebuyers, lenders and real estate agents, who are seeing their closings delayed.
If the government shutdown turns out to be a long one, it could damage the housing market, which in some parts of Illinois is still struggling to gain momentum.
According to Lawrence Yun, chief economist with the National Association of Realtors, the shutdown is already causing uncertainty and hurting consumer confidence.
“For ordinary Americans, the shutdown adds to economic uncertainty about their future,” said Lawrence Yun. “Buying a home is a high-anxiety transaction, and by adding another complexity to it with possible delays in [the transaction], it hurts the economy and hurts consumers.”
Below is a list of how a continued government shutdown could impact your real estate transaction.
Real Estate Transactions Impacted by Shutdown:
- FHA loans could be delayed
- USDA loans will not be processed
- Delays in IRS transcript and Social Security reporting
Real Estate Transactions Not Affected by Shutdown:
- Fannie Mae
- Freddie Mac
- VA Loans
- Flood Insurance
Loans insured by the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) are typically not impacted by government shutdowns.
However, with less staff working at the FHA, some borrowers may see a closing delay due to the increased backlog.
The USDA will not issue new Direct Loans or Guaranteed Loans.
Scheduled closings of Direct Loans have been canceled and unless your guarantee was previously issued for a Guaranteed Loan, those may not be closed, depending on your lender.
Check with your lender if you are getting a USDA loan or planned to use the USDA program to buy your home.
You may have to delay your home purchase until the shutdown is resolved.
VA staffers who approve the VA loans are paid through borrowing fees and are not impacted by the shutdown.
Social Security Reporting
To process a mortgage application, lenders will verify that your Social Security number is valid with the Social Security Administration.
Because of the delays expected in processing these requests, government-sponsored agencies have relaxed their rules to allow lenders to submit these reports prior to loan delivery rather than earlier in the loan process.
If your Social Security number cannot be validated prior to this time, however, your loan may be denied.
Lenders usually have borrowers sign an IRS request for a transcript of tax return (Form 4506-T) at or before closing.
The IRS is not processing new requests for transcripts during the shutdown.
Lenders are not required to have the transcripts at closing and, in many cases, can add the transcripts to your loan file after closing.
Federal Flood Insurance
New legislation was passed in December 2018 in order to extend the National Flood Insurance Program (NFIP) through May 31.
FEMA, which oversees the NFIP, is still selling and approving new policies.
Fannie Mae and Freddie Mac
The shutdown does not impact loan processing at Fannie Mae and Freddie Mac because they are not funded by the government.
However, the issue is that verification of employment is a key requirement to get a loan from these agencies.
If you are a federal worker or contractor, your lender may not be able to get a verbal verification of employment from your government employer prior to loan delivery.
This could cause your loan approval to be denied or delayed because your employment and ability to repay have not been fully vetted.
Article Source: How the government shutdown is disrupting mortgage, real estate transactions – BankRate.com
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The Law Offices of Lora Fausett P.C. provides real estate law services including loan modifications, buying and selling assistance, short sales and deeds in lieu, mortgage foreclosure defense, and more.