Friday, April 8, 2011

Could a Government Shut Down Impact Your Home Purchase or Sale?

The answer, sadly, is yes.

According to THIS DOCUMENT summarizing the expected consequences to the real estate and loan industry of a government shut down, the following programs could be impacted as explained:

FHA (Federal Housing Administration): No new loan commitments will be issued nor will FHA closings be authorized during the shut down.  I am particularly interested in this since so many FHA buyers are working hard to get homes under contract so that new loan commitments can be issued before the FHA mortgage insurance cost increases (set to increase 4/18).   My guess is that if you don't  have your loan commitment issued by today, and the government shuts down, you're probably going to be paying that higher mortgage insurance rate.  Buyers, and sellers, beware.  This will reduce the buyer's ability to pay as much for the home they choose.  Watch this video for some interesting info on FHA loans and our current market.

Rural Housing Loans:  If the lender had received a conditional approval prior to the shut down, they are authorized to proceed to closing.  HOWEVER, no new approvals will be issued during the government shut down.

IRS: If a buyer or seller is expecting an IRS refund check that will help them pay for purchase, sales or moving costs, watch out.  The IRS will only collect money, not spend it, during a government shut down.  In other words - no refunds until the fed is fully functional again. 

Also, most loans in process now require receipt of an IRS transcript.... it's tough to get that when the IRS isn't returning phone calls.  Unless lenders find a way around this requirement it could slow down processing of ANY purchase loans - even conventional loans.

Social Security/Disability:  The information from NAR does not discuss these programs, but I do recall that in the last government shut down many elderly and disabled were without income.  This could impact buyers or sellers depending on those funds for moving or closing.  However, the way I remember it impacting "real estate" last time was in the context of rentals.  A delay in receipt of a government check might mean someone who can't pay their rent on time.

HAFA and HAMP:  We're not sure about the HAFA and HAMP programs which are government sponsored programs allowing loan modifications and short sales.  One theory is that those programs will continue as normal since they are "mandatory" spending programs.  But we can't be sure. If you're in a short sale transaction, it is entirely possible that the process will be slowed.  But stay tuned as more clarity is offered on this subject.

Good News.  We're not expecting interuptions of

  • VA loan programs
  • FEMA (Flood Insurance)
  • Fannie Mae/Freddie Mac
  • Federal Housing Finance Agency
But even with continuing operations for these types of loans and private lenders, getting employment and income verifications completed is going to be tough for anyone.  As mentioned earlier, most lenders are requiring an IRS transcript with EVERY loan.  And, anyone in a federal job or working for a contractor, who gets furloughed, doesn't have income... at least not until the government is back to work.  That is going to effect their ability to qualify for their new home purchase.

I'd like to thank the National Associate of REALTORS(R) for providing this information so I can in turn provide it to you.
Clicky Web Analytics