The federal government shutdown is expected to slow the mortgage process for homebuyers and could stall sales.
“There are some impacts. A lot of it will be delays but there will be some disappointments along the way,” said Jim Wood, a research analyst at the University of Utah’s Kem C. Gardner Policy Institute.
That includes, he said, home shoppers deciding to step back amid the ongoing standoff between Republicans and Democrats in Congress over funding the federal government that resulted in the government running out of money to operate.
It comes down to the perception of potential buyers, Wood said, adding he believes some might postpone making a deal until they see how the shutdown plays out because they “just are a little bit more reluctant.”
If he was getting ready to buy a home, Wood said he might hold off, too. “I would probably just think, ‘Well, I’m just going to wait a little bit and see what happens.’ Because who knows? Maybe interest rates will plummet or all sorts of perceptions.”
The “short-term hiccup,” as Wood describes it, comes as a lot of would-be buyers in the U.S. have already been sitting on the sidelines. Polls have shown many are hesitant to make big purchases due to the economic uncertainty surrounding President Donald Trump’s tariff policies.
Is now the time to buy a home?
Clark Ivory, the CEO of Utah’s largest homebuilder, Ivory Homes, said the shutdown is adding to that uncertainty. But the temporary closure of the federal government shouldn’t be the factor stopping would-be homebuyers, he said.
“I think it’s just the opposite,” Ivory said when asked if purchases should be put off while Washington, D.C., deals with the impasse. “This has been more of a buyer’s market, and sellers and builders are very aggressive right now in helping, through rate buy-downs and concessions.”
That makes for “a better opportunity right now to go out and enter into a transaction than it would be when things work their way out and ramp back up,” he said, adding that some of the incentives being offered are likely to go away.
“When things do pick up, homebuilders like us won’t be as aggressive,” Ivory said.
He said what concerns him about the shutdown is how it affects “workers whose jobs may be put on hold, who were in the middle of purchasing, needing to close, and cannot get the proper verifications they need, or won’t be able to be certain about their ability to pick up a paycheck.”
That was an issue for federal workers the last time the federal government shuttered, for a record 35 days between December 2018 and 2019. Ivory said he’s hopeful this shutdown won’t last long, although the larger issue of economic uncertainty will still need to be addressed.
Mortgage application delays expected
Buyers moving forward with a new home purchase face delays in the mortgage process due to the shutdown. According to the online marketplace Zillow, the shutdown puts “more than 2,500 mortgage originations per working day” at risk.
“That means deals relying on these lending mechanisms may stall, perhaps indefinitely,” Zillow warned, noting that in a shutdown, the processing of federally insured or guaranteed loans “slows — and in some cases grinds to a temporary halt.”
The Mortgage Bankers Association advised before the shutdown that lenders should be ready for “significant delays,” adding a government closure of a few days “would slightly inconvenience lenders in processing loans; however, a longer delay would have more severe impacts.”
About 70% of the mortgage market is supported by the Federal Home Loan Mortgage Corporation that’s better known as Freddie Mac, and the Federal National Mortgage Association, commonly called Fannie Mae.
Both entities say they’re open for business despite the shutdown. A banner on the Fannie Mae site states, “During a federal government shutdown, Fannie Mae remains open and is here to support our industry partners and their borrowers.”
Freddie Mac issued guidance about the shutdown that spells out the federal employees affected can seek a break in repaying their loans, and expresses appreciation for the “understanding and consideration” extended to “borrowers coping with the hardships imposed by the shutdown.”
Redfin, an online brokerage, predicted some “delays and frictions” for home sales, including buyers applying for federally backed mortgages like FHA or VA loans that must be secured through specific government agencies.
The U.S. Department of Agriculture also has a home loan program aimed at helping low- and moderate-income buyers in rural areas. In Utah, that includes places like Eagle Mountain and Tooele.
Those loans account for about a quarter to a third of all loan applications, Redfin said.
Homebuyers in flood-prone places like Florida, Louisiana and even parts of Utah that depend on government-backed flood insurance to meet the requirements to qualify for many loans also may run into difficulties during the shutdown.
More than 4 million flood insurance policies are underwritten in the United States by the National Flood Insurance Program that’s administered by the Federal Emergency Management Agency, CBS News reported.
How the IRS is impacting homebuyers during the shutdown
Mortgages that require information like federal tax returns and income verification from the Internal Revenue Service are also expected to be slowed down by the government shutdown, although some rules are being relaxed.
That could make it difficult in some cases to close on a home, Anthony Smith, an applied economist at Realtor.com, told CBS News ahead of the shutdown.
“They rely on other federal processes like the IRS for tax transcript verifications,” Smith said. “So if the IRS shuts down or significantly cuts back on its transcript services, then Fannie and Freddie might be able to approve a loan, but they can’t get the final verification piece.”
Zions Bank mortgage manager Jeremy Holmgren said bigger banks like Zions hold on to about half of their mortgage loans and so don’t require the IRS records used to sell a loan to Freddie Mac or Fannie Mae until after closing.
That gives the bank some flexibility if the shutdown affects getting information from the IRS, Holmgren said, suggesting that buyers pay attention to how the government closure could affect their loans.
“It could have an impact for sure. Make sure that you are asking the questions about these entities potentially not being open and does it impact the lender you’re working with,” he said, noting that independent brokers often sell all their loans.
A delay in getting the IRS transcript, Holmgren said, “could mean contracts aren’t fulfilled and buyers aren’t able to buy the home.”