With the federal government shut down as of 12:01 a.m. Wednesday, homebuyers could soon face unexpected hurdles.
First, people applying for government-backed mortgages through the Federal Housing Authority (FHA) or Veterans Affairs (VA) might have to wait longer for approval. The National Association of Homebuyers warned consumers that “some delays in [FHA loan] processing and closing should be expected.”
If the shutdown lasts weeks, rather than days, U.S.-backed mortgage approvals could be paused altogether.
“Historically, shutdowns have averaged about eight days, which the market can typically absorb,” said Rob Henger, co-founder of housing nonprofit American Pledge. “But if one stretches beyond 30 days, the picture changes dramatically. At that point, lenders will likely stop closing FHA, VA, and [U.S. Department of Agriculture] loans altogether, which could leave many families unable to move forward with buying a home.”
The Department of Housing and Urban Development, which oversees FHA, did not respond to specific questions for this story in time for publication. The VA’s website states that housing benefits will remain in place during the shutdown.
Why It Matters To You
A government shutdown doesn’t just stall Washington—it can upend everyday financial milestones like buying a home. For families on the verge of closing, even a short delay could mean losing a dream house or thousands in deposits.
IRS Income Verification Could Slow
The Internal Revenue Service plays a crucial role in the mortgage application process, specifically in verifying income. When a buyer applies for a home loan, the lender will typically check their income by requesting tax transcripts. The buyer signs a form authorizing the IRS to send the returns directly to the lender, as a safeguard against buyers falsifying their income.
But what if the government shuts down mid-application and you’ve already signed a purchase agreement?
That’s what Moses Kagan, co-founder of Adaptive Realty, said happened to him in 2013. He said he signed a deal to buy a four-family unit, set up an escrow account, and had the property appraised. That’s when the government stopped, Kagan told Investopedia. Eventually, the deal went through after the government reopened, but Kagan said he had to extend his closing deadline more than once and faced pressure to back out of the transaction.
The IRS will continue operations for the first five days of a shutdown, according to the agency’s posted contingency plan. After that, it’s less clear whether those applications will be processed automatically.
Flood Insurance Approvals
Homebuyers and owners with federally backed mortgages may experience delays in purchasing or renewing flood insurance, which is required for buildings in designated flood hazard zones. The National Flood Insurance Program’s authorization to issue new coverage and renew current policies expired on Tuesday.
Without this insurance, sales of homes in flood zones cannot be completed. The Federal Reserve came to the rescue of homebuyers on Wednesday, directing lenders to go ahead with making loans without flood insurance.
“Lenders may continue to make loans without flood insurance coverage,” said the Fed, “but must continue to make flood determinations; provide timely, complete, and accurate notices to borrowers; and comply with other applicable parts of the flood insurance regulations. In addition, lenders should evaluate safety and soundness and legal risks and should prudently manage those risks during the lapse period.”
The Bottom Line
With the government shut down, home purchases might be stalled by issues with mortgage approvals, income verification, and federal flood insurance, to name a few. Those issues are likely to be exacerbated if the stoppage isn’t resolved soon.