The government shutdown that went into effect on October 1, 2013 sent almost 1 million federal employees home for an undetermined amount of time and halted government operations almost everywhere.

But what will the shutdown do to your mortgage application?

FHA Loans Affected Mildly

The US Department of Housing and Urban Development (HUD) issued a 67-page contingency plan that says that the Office of Single Family Housing will continue to endorse new loans during the shutdown.

In addition, FHA’s website, called FHA Connection, will stay open so that FHA lenders will be able to request FHA case numbers, which are required for FHA loans.

FHA lenders have what are called “Direct Endorsement” underwriters or DE underwriters. This simply means that these underwriters are certified to review and approve FHA loans without FHA having to review them. Since mortgage companies and banks that issue FHA loans are private companies and not affiliated with the government, they will remain open for business.

Even though lenders can approve FHA loans themselves, they still require some guidance from FHA on occasion, with difficult loan files. If your application is one that needs FHA input, it may be stalled due to the “limited number” of FHA employees on hand.

In addition, FHA states in its contingency plan that they will continue to endorse loans (the process of insuring and finalizing the loans), so the impact on home buyers and the housing market will be minimal. But they warn that they may be forced to stop endorsing loans if the shutdown lasts for an extended period.

Another key statement was that reverse mortgages, also known as Home Equity Conversion Mortgages (HECM), would not be endorsed at all during the shutdown.

USDA Loans Most Affected by the Government Shutdown

The USDA home loan program is most affected so far. The USDA home loans website was down as of October 1, with the government shutdown to blame.

According to USDA’s Rural Development department contingency plan, no new loans or guarantees will be issued during the shutdown. In addition, basically all USDA home loans operations have halted.

This may impact you a great deal if you have a file being reviewed by USDA and a closing date on your home purchase happening soon.

To add insult to injury, USDA’s eligible geographical boundaries changed, effective October 1, 2013. Those who are not sure whether their loan file was received prior to the change might be waiting a while to hear from USDA.

Many local USDA Rural Development offices around the country, who are responsible for putting the final stamp of approval on all USDA loans, are typically very backlogged as it is. There’s no telling how much more this shutdown will add to wait times.

Needless to say, anyone buying a home with a USDA home loan should consider negotiating with the seller immediately for an extended closing date.

VA Loans – Almost No Affect as of Now

At this time, all functions of the VA Home Loan Guaranty program are up and running.

The homepage of VA’s VIP website states that operations will continue as normal during the government shutdown.

The VA loan guaranty is financed by the VA funding fee, which is about 2.15 to 3.3% of the loan amount, payable by the Veteran at closing.

Nonetheless, federal employees are needed to process these loans through various systems. During an extended shutdown, there is a chance there could be some delays getting necessary documentation like a Certificate of Eligibility (COE) or a VA appraisal.

Conventional Loans Are Still Possible During Shutdown

One piece of good news is around conventional loans. Fannie Mae and Freddie Mac have issued statements that they will operate as usual. Though the mortgage giants are under government conservatorship, they are private entities that do not require government funds.

However, every type of loan requires what are called 4506 tax transcripts – proof that comes directly from the IRS that the borrower’s income, as stated on the mortgage application, is accurate. With IRS employees furloughed, tax transcripts are currently unavailable.

The same goes for social security number verifications often required when there’s a discrepancy somewhere in the file.

But Fannie Mae and Freddie Mac have issued statements saying that lenders can close loans during the shutdown. The lenders can then get IRS and Social Security verifications after loan closing but before delivering them to Fannie Mae and Freddie Mac. Some bigger lenders will close loans, hold them, then deliver them after getting necessary verifications. Those looking for a conventional loan should not hesitate to apply.

Some Lenders Postpone Receipt of Verifications

Many lenders who aren’t willing to close loans before receiving 4506 tax transcripts or social security number verifications simply put the loan on hold. This could spell dire consequences for home buyers, who may lose the chance to buy their home and forfeit thousands in earnest money if their loan isn’t closed on time.

But a handful of lenders continue to close loans despite not having tax transcripts and social security number verifications in-hand. “Guild has announced that we will continue closing our clients’ loans through the shutdown even if we do not have these required items in our files,” says Rita Reeve, Senior Loan Officer at Guild Mortgage Company in Bellevue, Wash. “We will keep track and obtain them post-closing.”

The borrower must be a W2 employee, says Reeve, meaning self-employed borrowers may need to wait for the government to come back on line. Still, this is quite an accomodation, considering the risk to the lender if one of the verification pieces later reveals a fraudulent application.

But Guild seems to have more to gain than lose. Reeve went on to say that real estate agents should check if their clients’ lenders can close without these government-produced verifications. “If their lender cannot confirm ‘yes,'” says Reeve, “their clients should call us to protect their closing dates and purchase transactions.”

Government Shutdown Ripple Effects

Indeed, the government shutdown will have ripple effects throughout the economy, all the way down to personal home loans.

At this point, many wishful homeowners can only hope for a short-lived shutdown to avoid costly delays with their home purchase and refinance goals.