The Shutdown's Housing Market Woes
It's a great time to buy a home, and you're ready. You've saved up a suitable down payment, found a home, and settled on a lender. As an added bonus, interest rates are at their lowest point in the last nine months – despite the Federal Reserve's interest rate hikes.
There's only one problem. The government shutdown has created obstacles to your mortgage – maybe in ways you hadn't considered.
The shutdown effect is obvious if you're a government worker suddenly trying to buy a home with IOU's – but, otherwise, why would your mortgage application be affected? It may depend on the type of loan you're seeking.
USDA loans, popular in rural areas, are backed by the U.S. Department of Agriculture. With the USDA shut down (at least as of this writing), no new applications are being accepted and scheduled loan closings have been put on hold. Homebuyers caught in the middle are being forced to ask lenders for extensions or switch to FHA or VA loans – if they qualify. Some are stuck without viable options, watching potential home purchases crumble.
Other loans may require verifying paperwork from the IRS – for example, verification of income – before loan processing can proceed. The Washington Post reports that the mortgage industry successfully pressed the Trump administration to call back IRS workers processing income verification forms and restore their pay, removing this roadblock. Similarly, FEMA renewed the sale of flood insurance policies that are crucial to home sales in flood-prone areas.
Other case-by-case roadblocks remain and affected interest groups will be lobbying for relief. Stay in touch with your lender and monitor the news, as options could change any day.
How To Keep the Home You Already Have
Government workers who already own homes have a more fundamental cash flow problem. Government contract workers are in even worse positions, because they may not receive back pay to make up the difference.
Few workers can miss multiple paychecks and still be able to make full mortgage payments. If your paycheck is being held hostage by the shutdown, ask your lender for a forbearance that will temporarily suspend or reduce your payments. Your lender may also be able to provide a short-term loan at reduced interest rates. Navy Federal Credit Union is even allowing one-time-only loans of up to $6,000 at 0% APR.
Always Have a Plan B
The government shutdown highlights one of the fundamental rules in the housing market – at some point as a homeowner or homebuyer, you're going to be thrown a financial curveball. It may be making mortgage payments when you're hit with a financial crisis, making unexpected home repairs, or getting into a bidding war to buy your first home.
You can't possibly anticipate all of the negative possibilities, but you can take some fundamental steps to limit their effects.
Start by establishing an emergency fund during better times, so you don't have to rely completely on credit to get through a true financial crisis.
If you're entering the home buying market, keep interest rate offers low by keeping your credit score high. If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, join MoneyTips. Make all payments on time and keep other debts as low as possible. Lay out a proposed monthly budget that allows you to make all payments and still have a surplus to contribute to an emergency fund – and if you can't, you may be buying more home than you can afford.
If you already have a home and have no emergency fund, your plan B is a combination of spending cuts and finding second sources of income – but you may not be able to cover a mortgage payment just with those steps. Be proactive with your lender and other creditors to explain the situation.
You'll have to prioritize debt and possibly make only minimal credit card payments while you devote existing cash toward your mortgage. Normally, we'd suggest attacking high-interest credit card debt first – but it's important not to lose a secured asset like your home.
Today, it's a government shutdown. Tomorrow... it may still be a government shutdown. However, there are plenty of other unpredictable setbacks that can threaten your homeownership dreams – or put you in an awkward position if you're already a homeowner.
Prepare for worst-case scenarios and have backup plans wherever it's possible. Good backup plans involve planning for the most likely setbacks and having a budget that can absorb at least some of the financial impact. If the emergencies don't come, great! You have extra funds to devote to other needs.
Did we mention the importance of an emergency fund? Don't let that message fade away after this shutdown crisis passes. Given the current political climate, the odds of future shutdowns are disturbingly good.
MoneyTips is happy to help you get free mortgage and refinance quotes from top lenders.