We’re getting some questions regarding the government shutdown and the effect on our mortgage operations.
Will A Government Shut Down Effect Mortgage Lending?
Yes, it will slow us down, especially with Transcripts and Flood Insurance. Hopefully we are looking at just today so there won’t be a huge impact but if it is longer, here are some potential issues…
- IRS transcripts – the IRS will not process transcript requests during the shutdown. Continue to submit as normal and the backlog will get completed in the order it was received. If you are applying for a mortgage, the first place you’ll want to start is making sure that you are fully caught up on any income or other taxes. We need 2 years of tax returns for the Underwriters, and if you are behind on government payments it will be a significant red flag. You can obtain a copy of your transcripts from the IRS website. If you owe them money, set up a payment plan. After you’ve made 6 months of payments, we can get you approved, and we add that payment with the other ones to calculate your ratios.
- National Flood Insurance Program (NFIP) – The authority to provide new flood insurance contracts is expired for the duration of the government shutdown. This will delay all new home sales or insurance renewals for property owners with federally-backed mortgages who lie in a Special Flood Hazard Area. This disruption could lead to significant uncertainty in the housing market and may result in the cancellation of sales. However, flood insurance contracts entered into before Jan. 20 will continue until the end of their policy term of one year.
- USDA Home Loans – No new guarantees will be issued during the shutdown. I’ve not seen any notifications yet from the USDA offices but will pass them on when I do. THIS IS SIGNIFICANT, as all USDA Home Loans must be underwritten by a USDA Underwriter. We approve them, and then the USDA Underwriter approves them. We’ve been told that a shutdown of more than two weeks is likely to have a significant impact on rural development programs. USDA Home Loans are 100% mortgages (no down payment required) with very low mortgage rates and very low PMI.
- FHA Mortgage Loans – may not be able to get hold of an HUD employee but many employees are contracted so you can still try. Systems are automated so don’t expect to see any issues in originating FHA loan during the shutdown.
- For the most part, FHA Underwriters will require a middle credit score of 620, and they want to see 3 open trade lines on your credit report, that have been there for at least 12 months. Medical Collections that are only a couple of hundred dollars do not generally need to be paid – however, if you have thousands and thousands of dollars of collections outstanding, even if they are medical related, they will probably require that they be paid off. If you have outstanding Student Loans, you will need to make payment arrangements, and the underwriter will likely require that you make a few of them on time before loan approval.
If you’ve been hurt by the recent economic turn down and have a bankruptcy, foreclosure or short sale in your history – FHA will still do a loan for you! The bank will make a FHA Mortgage Loan with minimum credit scores between 600 and 620.
- Fannie and Freddie – business as usual.
- Department of Labor – Builders rely on employees from other cases, and the agency will likely stop processing employers’ foreign labor certifications to access temporary workers under the H-2B program.
“It is unclear how long the shutdown will remain in effect. In most cases, the short-run impacts will be minor. A long-run shutdown, lasting several weeks or a month or more, could have significant impacts on mortgage accessibility and reduce housing demand.”
If you have questions about how will a Government Shut Down effect Mortgage Lending, call Steve and Eleanor Thorne 919 649 5058. We know what the different down payment options are, and we know how to qualify you for the different debt to income ratios that the programs have