What a Government Shutdown Means for Home Buyers and Sellers

Navigating Real Estate Transactions During a Government Shutdown

Understanding the Impact of a Government Shutdown on Real Estate

Congress failed to approve funding for government operations by the September 30, 2025 deadline. This resulted in a partial government shutdown that began at midnight. Many government programs, including those affecting federal housing and mortgage services, have been suspended or slowed due to this lapse in funding.

In this article, I will summarize how key agencies and programs are expected to operate during a shutdown. I will also explore what this means for home buyers and sellers.

Environmental Protection Agency (EPA)

Under the EPA’s shutdown plan, most employees will be furloughed. This will affect various regulatory programs and compliance activities. For example, wetlands determinations under the 404 program and enforcement of lead-based paint disclosure and renovation programs will be impacted.

HUD Programs

The Department of Housing and Urban Development (HUD) has a contingency plan that keeps many housing programs operational, though often in a reduced capacity. The Federal Housing Administration (FHA) will continue to endorse new single-family mortgage loans, except for certain types like HECMs and Title I. However, many actions requiring staff input, such as processing certain condominium project approvals, are suspended.

Essential FHA operations, including paying claims, servicing mortgages, and managing foreclosed properties, will continue, often via contractors. Borrowers may need to turn to private flood insurance if the National Flood Insurance Program lapses during the shutdown. The FHA Resource Center remains open for questions, but staff availability may be limited, leading to longer wait times for assistance.

Housing counseling agencies may continue services, but only if grant funds have already been awarded. New grants, renewals, or payment draws are paused, meaning some agencies may need to reduce or suspend offerings.

Housing Choice Voucher holders can expect Assistance Payments to continue under existing obligations. However, additional funding requests or approvals will be delayed. New vouchers may be issued, but prolonged shutdowns could create cash flow problems for Public Housing Authorities. Landlords and tenants should check in with their local PHAs for the latest status.

Government Sponsored Enterprises

During previous shutdowns, Fannie Mae and Freddie Mac have continued normal operations since they do not rely on appropriated funds. Here are four key areas to consider:

1. Verification of Employment: For homebuyers employed by the federal government, both Fannie Mae and Freddie Mac allow for verification of employment to occur after closing but before delivery of the loan.

   
   

2. Tax Transcripts: Freddie Mac requires all borrowers to sign a 4506T (Request for Transcript of Tax Return) request form prior to closing. However, this request does not have to be processed before closing. Fannie Mae has a similar requirement unless the borrower’s income can be verified through Fannie Mae’s proprietary Desktop Underwriter verification system.

   
   

3. Verification of Social Security Number: Sometimes, social security numbers are disputed and must be verified. Fannie Mae allowed lenders to verify numbers prior to delivery during the 2018 shutdown, but did not allow delivery if the number was not confirmed. Freddie Mac does not require verification of social security numbers.

   
   

4. Proof of Flood Insurance Coverage Application: Both Freddie Mac and Fannie Mae require a completed application for flood insurance and a copy of a check for the first premium or the settlement statement reflecting payment of the initial premium.

   
   

Internal Revenue Service (IRS)

While the IRS has not yet released its shutdown contingency plan, past government shutdowns have shown that the agency can only keep employees on the job if their duties protect the government. For example, during the 2018 closure, about 12% of employees were required to report to work. They could open mail only to search for checks payable to the government and were not allowed to answer taxpayer phone calls or issue tax refunds.

National Flood Insurance Program (NFIP)

During a lapse of authority, the NFIP cannot sell new or renewal flood insurance policies. Existing NFIP policies will remain in effect until their expiration date, and claims will continue to be paid until funds run out. NFIP policies may be assigned from seller to buyer during a lapse, and most lending regulators have issued guidance providing flexibility. Private market flood insurance is also an option.

Rural Housing Programs

The USDA will not issue new direct or guaranteed loans, and scheduled direct loan closings will not take place. Pending conditional commitments for guaranteed loans will be reviewed, and if possible, USDA may issue the loan note guarantee. Guaranteed loan closings without a previously issued guarantee may still proceed, but only at the lender’s risk.

Disbursements on existing construction loans may continue when necessary to protect USDA’s property interests. All pending loan servicing actions, including guaranteed loss claims, must be documented and secured for timely processing after the shutdown ends. Rental assistance will continue only if a threat to USDA's property interests becomes imminent, and funding remains available under existing rental assistance agreements.

Veterans Affairs

The Department of Veterans Affairs (VA) will continue to guarantee home loans during a government shutdown, and lenders may keep processing applications. However, some VA staff and support functions may be reduced, which could slow down approvals, appraisals, and certificate of eligibility requests. Veterans seeking a new loan or refinance should check with their lender for updated processing times during an extended shutdown.

Small Business Administration (SBA)

During the shutdown, the SBA will not process new loans or approve routine small-business loans, including the CDC 504 Loan Program and the 7(a) Loan Program. However, the agency will continue to close previously approved CDC 504 Loans and carry out limited loan servicing and liquidation activities. The Office of Advocacy will also cease operations, but the SBA will continue to issue Disaster Loans if needed.

Visa Programs - EB-5 and H-2B

Although the EB-5 Immigrant Investor Regional Center Program receives government funding, its current operations are funded and authorized through September 30, 2027. Due to its reliance on some independent funding sources, the EB-5 program will continue to operate during this shutdown.

However, application times may be delayed because other agencies, such as the State Department, will shut down, resulting in staffing shortages and additional delays. Investors may continue to file I-526 petitions and respond to USCIS Requests for Evidence (RFE) and Notices of Intent to Deny (NOID). Additionally, investors may continue to prepare and file I-829 petitions.

The processing of labor condition applications for various work visas, including the H-2B visa, will be shut down. Similarly, the processing of prevailing wage, labor certification, and other DOL Office of Foreign Labor Certification operations will cease. DOL/OFLC personnel will not be available to respond to inquiries, and web-based systems for filing, status checks, and uploading documents will be offline. Deadlines related to DOL applications and procedures are typically modified.

How Will All of This Affect the Housing Market?

Most homebuyers won't be directly affected by the government shutdown. It isn't expected to significantly impact the processing and approval of traditional mortgages. However, the shutdown will disrupt small but important elements of the housing market. A lengthy shutdown could generate significant uncertainty, weighing on home sales.

Perhaps the most significant impact on homebuyers is a lapse in authorization for the National Flood Insurance Program (NFIP). This program provides over 90% of flood insurance policies sold across the country. While existing policies remain in force and the program will continue to pay claims, the NFIP cannot write new policies until a new spending bill is passed.

Mortgage lenders typically require flood insurance for homes located in flood-prone areas. The suspension of NFIP underwriting will leave thousands of homebuyers scrambling for alternative coverage or unable to close on their homes. The National Association of Realtors® estimates that the pause in new NFIP policies will delay or disrupt approximately 1,400 home transactions each day. Many buyers in high-risk areas may find themselves without flood insurance coverage.

“Each day that passes during the shutdown, potential real-life impacts will be felt in America’s housing market, which accounts for nearly 20% of the U.S. economy," says NAR Chief Advocacy Officer Shannon McGahn.

Meanwhile, the hundreds of thousands of federal workers who are furloughed or working without pay may struggle to pay rent or make mortgage payments. "If the shutdown lasts for weeks, the resulting financial strain could weaken home sales, particularly in metros with a higher share of federal workers," says Realtor.com senior economist Anthony Smith. "Over time, this could even contribute to softening home prices in these markets."

How to Navigate a Real Estate Transaction During a Shutdown

• Communicate with Your Lender: Lenders can provide updates on any slowdowns, especially if you are using a government-backed loan.

  
  

• Plan for Delays: Factor in extra time for the approval and closing process, especially if the shutdown is prolonged.

  
  

• Seek Alternatives for Flood Insurance: If buying a home in a flood zone, ask about private flood insurance options to avoid delays caused by the NFIP lapse.

  
  

• Stay Informed: Follow the news for updates on the shutdown's status and any potential resolutions.

  
  

If you or anyone you know is affected or worried about the effects it might have on your home buying or selling journey, please reach out to me. I'd be happy to assist.

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