How does a government shutdown affect a new home mortgage loan?

The longest government shutdown on record has just ended but it could be reinstated within weeks. If you are in the process of securing a mortgage loan or plan on getting a mortgage loan soon, you can find useful information in this article to help you navigate through the home buying process during a government shutdown.

Conventional Loans

A government shutdown does not stop the loan process for the majority of new mortgages. Most mortgages are “conventional loans”, meaning the federal government is not the lender. Conventional loans include Federal Housing Administration (FHA) and Veterans Administration (VA) loans. While federal agencies back qualified lenders for these loans in the event a borrower defaults, the federal government is not the lender. Conventional or not, some services needed to complete underwriting for mortgage loans is performed by federal agencies. During a government shutdown this could cause delays in closings but not postpone them indefinitely.

For a small amount of loans, such as direct loans issued by the U.S. Department of Agriculture (USDA), the federal government acts as the lender. In these instances, all loan processes are completed by federal agencies. As a result, new USDA mortgage loans (direct and guaranteed) are not  issued during a shutdown. For individuals in the middle of the underwriting process with a USDA loan, there are many unknowns during a shutdown.

Flood insurance

When buying a new home subjects such as flood insurance and the federal government don’t immediately spring to mind. However, if a new home is in a high-risk flood zone (also known as a Special Flood Hazard Area) flood insurance protection is often required for the mortgage loan. For instance, FHA loans require flood insurance for homes located in these areas. Additionally, mortgage lenders have the burden of determining if coverage is required. As a precaution, some lenders require flood insurance in moderate or low risk areas. This affects the new mortgage process because most flood insurance is issued through the National Flood Insurance Program, which is operated by the Federal Emergency Management Agency (FEMA). Just days before the shutdown began, FEMA announced it would not reauthorize use of the NFIP. However, on Dec. 21, 2018 the agency formally passed legislation toextend the NFIP through May 31, 2019.

IRS services and income verification

Most mortgage lenders submit an income verification request through the Internal Revenue Service (IRS) in order to verify income and give the lender confidence in the buyer’s purchasing power. The Income Verification Express Service (IVES) of the IRS was suspended temporarily in the early days of the shutdown, but was reinstated on January 7, 2019. A period of inactivity created a backlog of requests and cause delays in underwriting while lenders wait for income verification. This particularly affects loan seekers who are self-employed and without access to pay stubs or W-2 forms.

Federal Employees

The shutdown and furlough of federal employees means some new home buyers will not have the proof of income needed to complete a new mortgage loan. Fortunately, lenders eager to work with these employees can create solutions to help buyers in need.  For instance, in lieu of IRS income verification, Fannie Mae and Freddie Mac are offering a two-month mortgage payment cash reserve requirement. This allows buyers to skip income verification if they have enough cash reserves to cover two months of mortgage costs. Many other lenders are offering unique solutions, happy to answer questions regarding these options, and want to help alleviate stress surrounding a new home purchase during a shutdown.

In conclusion, a government shut down is unlikely to completely halt the new mortgage loan process, but there may be delays. While closing dates may be pushed back, the underwriting process is not at a standstill and will continue to function; though more slowly than normal. Additionally, lending options exist for federal employees and lenders are eager to assist in the process and answer questions.

 

The post How does a government shutdown affect a new home mortgage loan? appeared first on McKee Homes Blog.


Keep up to date On Instagram

PREVIOUS
NEXT
Our Townes at Gateway Commons community, located in Wake Forest, has several opportunities available! 

These unique 3-story townhomes are part of our upscale Autograph Series, including: 
 - Tiered cabinetry
 - Granite countertops
 - Large covered outdoor living space
 - Decorative lighting
 - One- or two-car garage
 - And so much more!

Check out the link in our bio for more information and book your private 1:1 tour TODAY!
This beautiful Palazzo Bungalow is available!

Located in our coastal community, The Courtyards at Scotts Hill Village, in Wilmington!

Book your private 1:1 tour through the link in our bio and get your #LifeChangingMoment started TODAY 🏠
Enjoy coastal living from the $200's! 🏖️

New South Bridge is an amenity-rich family-friendly new home community located in Bolivia, NC. 

The close proximity to great beaches and quaint coastal towns such as Southport and Shallotte, make this a perfect location for family fun or retirement heaven!

Start building your #LifeChangingMoment through the link in our bio!
2021 Wilmington Walk to End Alzheimer’s💜

Thanks to everyone that joined and supported this amazing organization!

Rain 🌧 or shine ☀️ Team McKee always shows up! #WeBuildLifeChangingMoments
These new homeowners are heading to closing! 🏠 

We’re excited to welcome this wonderful family to the Anderson Creek Club community!

Are you dreaming of a new home? Visit the link in our bio to get your #LifeChangingMoment in the works before the end of the year 🗓
Thank you to everyone that joined Team McKee yesterday at the Fayetteville Walk to End Alzheimer’s!

Together, we are working towards a world without Alzheimer’s 💜
Shoutout round 3️⃣ to these wonderful Regional Partners for McKee Homes and the Fayetteville Walk to End Alzheimer’s! 💜
 - USA DREAM STONE 
 - Raynor-Bryan Construction
 - On Tops Roofing
 - Gavin's Home Improvement
 - Environmental Stoneworks
 - A-1 LANDSCAPING & LOT CLEARING INC

Together, we are working towards living in a world without Alzheimer’s 💜

Don’t forget! The Fayetteville Walk is NEXT WEEKEND, and registration is still open! Visit the link in our bio to register and donate!
Shoutout round ✌️to these wonderful Regional Partners for McKee Homes and the Fayetteville Walk to End Alzheimer’s! 
 - 1st Choice Cabinetry
 - Cumberland Insulation Co.
 - The CHE Companies
 - J.M. Pope Electric
 - Oatis Brothers Delivery
 - R Burger

Together, we are working towards living in a world without Alzheimer’s 💜

Don’t forget! The Fayetteville Walk is NEXT WEEKEND, and registration is still open! Visit the link in our bio to register and donate!
Shoutout to these wonderful Regional Partners for McKee Homes and the Fayetteville Walk to End Alzheimer’s! 
 - @darkcloudathletic.co 
 - @cbadvantagehomes 
 - SPR Investments 
 - Wells Fargo Home Mortgage
 - Averette Engineering Co., P. A.
 - JR Cleaning Inc.

Together, we are working towards living in a world without Alzheimer’s 💜

Don’t forget! The Fayetteville Walk is NEXT WEEKEND, and registration is still open! Visit the link in our bio to register and donate!
We were excited to welcome these two #Homebuying couples into the design studio to complete their selections process🏠

One of the most personal and enjoyable aspects of buying from McKee Homes is having the opportunity to personalize your dream home.

Check out the link in our bio to create your own #LifeChangingMoment with McKee Homes! We have numerous new home opportunities across the Raleigh, Wilmington, Fayetteville, and Pinehurst areas!