Congress is quibbling about the size of the token cut to the federal budget, The stalemate could force a shutdown of the federal government. How will that affect VA home loans, FHA mortgages, and conventional residential loans?
VA home loans are insured by the Veterans Adminsitration which receives its annual appropriation in advance. As such, most veterans services, including VA home loans, are funded through FY 2011. It is beleived that VA home loans will still be insured for the next 8 months and no interruption will occur.
Conventional mortgages require a 20% down payment and, as such, should be unaffacted by the shut down. Lenders can and will "warehouse" those loans until the can be sold, in bulk, to Wall Street.
FHA mortgage fundings may be arrested during a federal government shutdown. FHA mortgages are insured by the Federal Housing Adminsitration (a division of the Department of Housing and Urban Development). All functions of that department are considered "non-essential" so it is believed that FHA will cease operations. Lenders can (and some may will) fund FHA loans, for a short period of time, in anticipation of obtaining the FHA insuarance in the near-term future but it is unlikely they would continue to fund beyond the end of the month.
What does this mean to you? Lenders will probably be very choosy with the loans they fund. We could see them refuse to take normal risks and susoend or decline loans which are not "plain vanilla" files. HIgher debt-to-income ratios, marginal credit scores, and unclear exceptions to the FHA guidelines will most likely be shunned during a government shutdown.
