October 17, 2013
*UPDATE** The government shutdown has ended for now as of Wednesday night October 16 2013, but the advice in this post is sound, regardless. There could easily be another government shutdown if conditions repeat themselves in the next round of negotiations over the Federal budget when the current plan expires next year. If there is another government shutdown, the advice in this post will be good to know for affected FHA borrowers.
A reader asks, “I am a seller of a home that was suppose to close Oct 1. We still have not closed as of Oct 12. My buyer’s financial company is saying it is due to the government shutdown. Everything I read says it should not be held up. How does my buyer find out what is going on? She had a late payment on a mortgage Oct 2012 but has now made 12 months of on time payments plus she is putting 20% down.”
In some cases, a participating FHA lender may require IRS verification of tax documents for self-employed borrowers, small business owners, and other FHA loan applicants who must file certain tax paperwork along with their FHA loan application. Some lenders may allow certain paperwork to be signed and included in the loan application with the understanding that the IRS verification would come after the government shutdown ends.
But some lenders may not allow this. It all depends on the lender standards, the borrower’s circumstances and other factors. If the lender requires the IRS verification as a condition of loan approval, the government shutdown may affect an FHA loan application due to this lender requirement.
The reader asks how the buyer can find out what is going on–the simple answer is that the buyer needs to contact the lender for further clarification, but he or she may also want to contact the FHA directly by calling 1-800 CALL FHA to learn how the government shutdown might affect a loan application under that borrower’s circumstances.
Yes, the FHA loan program continues during the government shutdown and while loan applications may still be processed and reviewed, if a lender’s standards require IRS verification, that portion of the process could definitely be affected. The IRS is only staffed at about nine percent (according to some sources) during the shutdown–paperwork will be much slower if it is processed at all during this time, at least where the IRS is concerned.
Borrowers who need IRS verification as part of their FHA home loan application should discuss the issue with their lender to see what options are possible. Every loan application is different so there’s no one answer for situations like these–your experience may vary.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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