The U.S. federal government has been shut down for nearly three weeks, and it’s starting to cause problems in the housing market, Realtor.com reports.
New homebuyers are having trouble getting loans, especially from government-backed programs like the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA) for rural housing.
Some loan programs are halted during a shutdown because the employees who process them aren’t working. The USDA, specifically, is not approving any new home loans during the shutdown.
USDA loans for home purchases won’t be processed until the government reopens. Even if a USDA loan was already approved before the shutdown, the agency won’t send out the money until the shutdown ends.
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USDA loans are only available in certain locations, mostly rural or small-town areas. You don’t have to make a down payment to get this loan, making it easier for people with limited savings. For some individuals, particularly those with limited income and no savings, a USDA loan may be their only means to afford to buy a home.
“For most first-time homebuyers, the biggest problem isn’t qualifying for a loan—it’s coming up with the down payment,” Michelle Parkison, senior vice president at AD Mortgage, told Realtor.com. “Since other programs often require 3% or more down, a lot of otherwise qualified people are blocked from buying a home just because they don’t have enough cash saved up.”
According to the Housing Assistance Council, in fiscal year 2023, the USDA gave out $10.6 billion in loans and grants to help people in rural areas buy or fix homes, and $1.5 billion to help renters with housing costs.
Flood insurance and home sales at risk
Homeowners and buyers seeking government-backed flood insurance through the National Flood Insurance Program (NFIP) are also impacted by the government shutdown. Without NFIP flood insurance, thousands of home purchases, especially in flood-prone areas, could be delayed or canceled, which puts a portion of the housing market on hold during the shutdown, Yahoo Finance reports.
Conventional mortgages less affected
Borrowers applying for a conventional mortgage through a private lender are unlikely to experience disruptions during a government shutdown. However, buyers seeking government-backed loans, such as FHA or VA, may encounter minor delays due to reduced federal staffing or limited agency operations during the shutdown.
More than 700,000 federal workers have been furloughed during the shutdown, meaning they were told not to work and are not being paid during the shutdown, according to the Bipartisan Policy Center.
