Government SHUTDOWN Is A PROBLEM For The Housing Market

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How a Government Shutdown Impacts the Housing Market: What You Need to Know

You've done everything right. Budgeted. Saved. Gotten pre-approved. Then suddenly, Washington shuts down. What does this mean for your home buying journey?

A government shutdown can throw a wrench into more than just politics. It can disrupt the very systems and agencies that keep the housing market running smoothly. From loan delays to flood insurance hiccups, here's how a prolonged shutdown could impact buyers, sellers, and the overall housing ecosystem.

In this post, we break down:

• The current state of the government shutdown
• What types of loans are most at risk
• Key agencies being affected
• Actionable steps to protect your home purchase

The Current Shutdown: Where Things Stand

At the time of this recording, we are 10 days into the government shutdown. The last major shutdown in 2018-2019 lasted 35 days. If this continues into November, it could break that record—with serious implications for housing.

Housing experts Jeb Smith and Josh Lewis warn: while many headlines are clickbait, this is not one to ignore. Home buyers already face high mortgage rates, tight inventory, and affordability challenges. A shutdown adds yet another layer of uncertainty.

“The longer it goes, the more things begin to break down.” — Josh Lewis

1. USDA Loans: Immediate Impact

Why It Matters

If you're relying on a USDA loan to buy a home with zero down in a rural area, the shutdown could already be affecting you.

Unlike FHA and VA loans, USDA loans require a conditional guarantee before closing. With the agency shut down, those guarantees are not being issued. No guarantee = no closing.

Real-Life Example

One long-time listener of The Educated Home Buyer podcast had to pivot from USDA to FHA mid-transaction because USDA stopped issuing guarantees. Fortunately, they had a down payment ready. Many others might not.

Key Takeaway

• If you’re in escrow on a USDA loan, contact your lender ASAP
• Explore alternative financing (FHA, conventional) if delays are likely
• Consider pushing back your closing date—if the seller is flexible

2. FHA & VA Loans: Proceed with Caution

These loans are insured after closing, which means lenders can still fund them during a shutdown. However, smaller lenders might not want to hold loans on their books too long without guarantees.

What You Should Know

• Lenders with strong liquidity and confidence in the government returning are still processing FHA/VA loans
• If the shutdown lasts 60+ days, some may start limiting these loans

Pro Tip: Stick with reputable lenders who have experience navigating past shutdowns.

3. Flood Insurance: 67,000 Transactions at Risk

Flood insurance, primarily issued through the National Flood Insurance Program (NFIP), is currently stalled. While existing policies are still valid, new flood insurance policies are not being issued.

Why It Matters

• If your home is in a flood zone and you need a new policy, you may not be able to close
• Private flood insurance is available, but more expensive and can affect your debt-to-income ratio

This is especially impactful in:

• Gulf Coast states
• Parts of Texas and California
• Washington, D.C.

4. IRS Shutdown: Income Verification Roadblock

The IRS plays a vital role in the mortgage process through form 4506-C, which verifies your tax returns. If you filed taxes recently, your return may not be processed yet.

Impact:

• Jumbo loans and self-employed borrowers are especially affected
• Delays in IRS transcripts could mean you can't close on time

If you're relying on recent income data, talk to your lender immediately to assess your risk.

5. Government Employees: Missed Paychecks = Loan Denials?

October 15th marked the first missed paycheck for military employees. Civilian federal employees could miss theirs by October 24th.

Why This Matters

• Lenders may pause or deny loans if you can’t show income
• Missed paychecks can affect your closing funds or loan approval

Some politicians have floated denying back pay, which would make this risk even more severe. It’s not confirmed policy yet, but it underscores the uncertainty of the situation.

6. Fed Rate Decisions: No Data = No Direction

The Fed's next meeting is scheduled, but with the labor market and inflation data delayed, they’re flying blind.

Why It Matters

• No jobs report = uncertainty in bond markets = rate volatility
• Markets tend to panic without data, creating more violent swings once data resumes

"When there's no data, the market has no direction. That doesn't mean it's calm. It means it's confused." — Josh Lewis

What's Not Affected Yet

Despite the chaos, conventional loans (Fannie Mae/Freddie Mac) and jumbo/private loans are mostly unaffected for now.

Loans are still closing.
People are still buying.
But proactive planning is key.

Programs Still Functioning:

• Fannie/Freddie (conventional)
• Jumbo loans (via private banks)
• Non-QM (bank statement, DSCR)

What Should You Do If You're In the Process?

If you're buying a home or in escrow, here’s what you should be doing right now:

1. Talk to Your Lender

• Ask: "Will my loan be affected?"
• Discuss backup plans (FHA instead of USDA, private flood insurance, etc.)

2. Verify Your Loan Type

• Is your financing USDA, FHA, VA, conventional?
• Do you need IRS transcript verification?

3. Communicate with All Parties

• Coordinate with your real estate agent, seller, and escrow officer
• If needed, adjust your timeline now

4. Stay Updated

• Subscribe to housing podcasts like The Educated Home Buyer
• Read reliable housing market sources (not just headline clickbait)

If you’re not sure where to start, connect with our expert team here.

Final Thoughts: Plan, Communicate, and Stay Calm

The housing market hasn’t ground to a halt. Not yet. But the longer this government shutdown drags on, the greater the risk for serious disruptions.

Whether you're a first-time buyer, a move-up seller, or an investor, your best defense is a great team and proactive planning.

Don’t wait for a crisis. Get clarity today.

👉 Click here to connect with our team and protect your next move