Will My Mortgage Application be Affected by the Government Shutdown?
Our government entered into a partial shutdown at midnight on December 22nd of this year. As I look back, I am disappointed to see that I published an article on this topic almost exactly one year ago. Every day, the news covers “big picture” topics related to the government shutdown. However, there are practical, sometimes far reaching consequences that are not always well covered in the media.
Unfortunately for those that are involved in a mortgage application, this partial shutdown can have an impact on the mortgage approval process. The availability of conventional, FHA, & VA loan programs are not directly impacted themselves. However, there are components involved in the processing & approval of these loans that could create a delay. Here are some things to know:
A lender will sometimes need to validate a borrower’s tax return data by requesting tax transcripts from the IRS. A majority of loans may close without the lender obtaining this data. However, certain loan programs or borrower profiles may require transcripts. If you currently have a loan in process, ask your lender if this is needed for your loan approval, & if they have already received the transcripts. If these are required, your closing could be delayed.
Social Security Number Validation
Much like tax transcripts, a lender may need to validate a borrower’s social security number. The ability to validate this information may be disrupted during the shutdown, which could delay a closing. Again, this is not needed for all mortgage loans, so borrowers are encouraged to check with their lender regarding social security validations.
Those government employees that are on a mandatory furlough may be required to return to work before closing, if their income is being used to qualify for the mortgage. Essential government employees that are working but not being paid will need to have their payroll restored if their income is being used for qualifying.
Individuals financing a home located in a flood zone that requires flood insurance may be impacted by the partial shutdown. If the mortgage requires flood insurance that is issued by FEMA’s National Flood Insurance Program, this insurance may be unavailable until the end of the shutdown.
***UPDATE! As of 12/28/2018: FEMA has resumed selling & renewing flood insurance policies!***
USDA (Rural Development)
On these programs, USDA will be unable to issue loan commitments or guarantees during the shutdown. Check with your individual lender regarding your specific impact.
The common theme for those applying for a mortgage, or for real estate professionals involved in mortgage transactions, is to get as much clarity as possible from the lender processing the mortgage. If closing dates need to be adjusted, it is best to have that dialogue with the parties involved as soon as possible. By doing this, hopefully buyers & sellers can remain flexible if they are involved in an impacted transaction. One last bit of advice for borrowers: check your rate lock expiration date if your closing will be delayed. Ask your lender about the extension policy, & if there is any cost involved.
As a mortgage professional, this is “government shutdown #5” for me. Thankfully, I do not recall any transaction that did not close due to a shutdown, although delays can happen. Stay positive, stay in touch with your lender, & hopefully the shutdown will end sooner than later. I will provide updates here & on other social media sites as the situation evolves. As always, please contact me with questions related to this, or for any of your home finance needs!