Apparently, the partial government shutdown is affecting some home buyers who use FHA and VA loans to purchase a home. Recent reports showed that some borrowers with FHA and VA loans have experienced delays and other “snags” as a result of the government shutdown. Here’s what you need to know about it.
‘Non-Essential’ Government Workers on Furlough
The ongoing government shutdown that is dominating the news cycle right now started on December 22, when Congress failed to pass a funding resolution. It is referred to as a “partial” shutdown, because most of the government was already funded and is therefore unaffected by the current impasse.
Many government agencies are now down to just “essential personnel.” Many workers who are considered to be “non-essential” have been put on furlough, while others are being forced to work without pay.
(Side note: If you’re concerned for the president’s financial wellbeing during these hard times — don’t be. Article II of the Constitution says that the president’s compensation “shall neither be increased nor diminished during the period for which he shall have been elected.” So he’ll get by. As for all of those other federal workers who are now falling behind on their bills, they’re less fortunate.)
Government Shutdown Affecting Some VA & FHA Loans
Which brings us back to FHA loans. These mortgage loans are generated in the private sector, the same as “regular” mortgage products. But they receive insurance backing from the federal government. The loans are originated and funded by mortgage lenders, and backed by the government. (At least, when the government is functioning.)
Similarly, VA loans used by military members and veterans receive a government guarantee through the U.S. Department of Veterans Affairs.
The FHA loan program is managed by the Department of Housing and Urban Development (HUD), and HUD is essentially closed right now. A visit to the department’s website on January 9 revealed the following message on a bright red background:
“Due to the lapse in Congressional Appropriations for Fiscal Year 2019, the U.S. Department of Housing and Urban Development (HUD) is closed. HUD websites will not be updated until further notice.”
The U.S. Department of Veterans Affairs website inspires a bit more confidence. As of January 9, their home page stated the following:
“The Department of Veterans Affairs is fully funded for fiscal year 2019, and in the event of a government shutdown, all VA operations will continue unimpeded.”
So, is the government shutdown affecting people who are trying to use an FHA or VA loan to buy a house? Apparently so. The National Association of REALTORS® recently surveyed its members on this issue, 11% of whom reported an impact on current clients. Another 13% reported a delay due to IRS income verification (which is typically required for mortgage loan processing), while some experienced closing delays for FHA and VA loans.
To quote the survey report:
“Among those impacted by the shutdown, 17 percent had a delay because of a USDA loan, 13 percent had a delay due to IRS income verification, nine percent had a delay due to FHA loans, six percent had a delay due to a VA loan.”
A related report from CBS News explained:
“If you’re getting a Federal Housing Administration or Department of Veterans Affairs loan, it’s likely you can expect delays in the underwriting process, and it’s possible your closing date will be pushed back as well.”
It’s important to remember that the government does not actually provide funds to home buyers. Mortgage lenders do that. The FHA merely insures the loans, while the VA partially guarantees them. But their involvement is still needed to complete the process, and that’s where some borrowers are reporting delays and snags.
Hopefully, the current shutdown will be resolved in the near future. In the meantime, home buyers who plan to use an FHA loan (or some other government-backed mortgage program) will have to be flexible.