If you are in the process of getting a mortgage or are about to apply for one, the last thing you'll want to hear is that a government shutdown may delay your plans.
But if Congress doesn't get its act together to approve a budget to send federal employees back to work, some homebuyers may have to reschedule their closings.
A problem for all types of home loans
Lenders are required to verify a borrower's income with the Internal Revenue Service before the lenders can approve and close home loans. As with other government agencies, most IRS operations are closed.
"Mortgage approvals require a completed (IRS Form) 4506-T. This is the form lenders use to compare W-2 and self-employed income against the official IRS records," says Dan Green, a loan officer for Waterstone Mortgage in Cincinnati. Lenders can't verify this information with the IRS while the government remains closed.
"Without tax return verifications, loans can't close," he says.
Lenders operate at their own risk
Some lenders could choose to proceed without the IRS income verification, but they would have to do so at their own risk, says Brian Koss, executive vice president for Mortgage Network in Danvers, Mass.
"The expectation is that we are supposed to be doing responsible lending and auditing these loans prior to closing. But the government has exposed us to this risk, plus you have people whose deposits are at risk, too," he says of the buyers with pending closings.
Normally, lenders verify the borrower's income early in the application process. It's worth checking with your lender on where the process stands to see if you need to come up with a plan B.
"Anyone in process of getting a mortgage right now should be very concerned," Koss says. "Make sure they sit down with their lender and ask, 'How are you going handle this change?' Especially on purchases."
The Federal Housing Administration will continue to insure FHA loans during the shutdown, says the U.S. Department of Housing and Urban Development. For now, you shouldn't have problems when applying for an FHA loan as long as your loan goes through the FHA's automated underwriting system.
But any types of FHA loans requiring manual approval or interaction with an FHA staff may be delayed. Only 350 of HUD's 9,000 employees will work during the shutdown, according to HUD's latest contingency plan.
"Say you are trying to get an FHA loan for a condo. You may have a problem," Koss says.
The U.S. Department of Agriculture, which backs USDA mortgages, has mostly gone dark. The agency's contingency plan says no rural housing loans will be issued during a shutdown. If you have a USDA loan in the works, your application will likely be put on hold unless the USDA has signed off on the loan and it's ready for closing. If you were planning on applying for a USDA loan, you may have trouble finding a lender willing to take your application until the USDA is operational again.
"If you wanted to apply for a USDA loan, as of today I'd say I can't fund your loan, so it would be irresponsible to take your application," Koss says.
Has your loan application or closing been affected by the shutdown?
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