Bad News is Good News? What the Government Shutdown Means
What Is a Government Shutdown — And Why It Happens
Here is the 30,000-foot view: when Congress can’t agree on funding the federal government (i.e. passing appropriations or continuing resolutions), many federal operations lose their legal authority to spend money. This triggers a “shutdown” of non-essential agencies until funding is restored.
More specifically:
The U.S. federal government’s fiscal year begins October 1. If appropriations bills (or stopgap funding bills) are not passed by then, there’s a lapse in funding.
Under the Anti-Deficiency Act, agencies can’t legally obligate or spend funds without that authorization.
Some parts of government are considered “essential” (defense, emergency services, etc.) and continue during a shutdown; many others are paused, shut down, furloughed, or operate at a reduced level.
In the current 2025 shutdown, it stems from disagreements between Republicans and Democrats over spending levels, health care subsidies, foreign aid, and priorities in the budget.
Government Shutdown 2025: What It Means for Homebuyers and Sellers
When Washington stalls, the ripple effects reach far beyond Capitol Hill — even into our local housing market. As of October 1, 2025, the federal government has shut down after lawmakers failed to agree on a budget. But what does this mean if you’re trying to buy, sell, or refinance a home right now? Let’s break it down.
Why the Government Shut Down
Every year, Congress is supposed to pass a budget to fund federal agencies. When they can’t reach a deal, money stops flowing to “non-essential” operations, causing what’s known as a government shutdown. Essential services like national defense and Social Security continue, but many other programs are delayed or paused until an agreement is reached.
How a Shutdown Affects Mortgages & Real Estate
A short shutdown (just a few days) may cause minor hiccups. But the longer it drags on, the more likely we’ll see real delays in the mortgage and housing markets. Here’s how it plays out:
Government-backed loans (FHA, VA, USDA)
These rely on federal staff. During past shutdowns, loan processing slowed significantly, and USDA loans were sometimes put on hold altogether.Flood Insurance (NFIP)
Homes in flood zones require coverage through the National Flood Insurance Program. If NFIP authorization lapses, new policies and renewals may be frozen — which can stop closings in their tracks.IRS & Income Verifications
Lenders often need tax transcripts from the IRS. If those systems go dark or staff are furloughed, income verification could slow down approvals.Economic Data & Market Volatility
Shutdowns also delay government reports on jobs and inflation. Without those, markets can get jittery — sometimes pushing mortgage rates down temporarily but making them unpredictable. Have these reports really been that accurate anyway?Closing Timelines
Even if your loan is conventional (not government-backed), the web of verifications means longer turn times and potential closing delays.
What Buyers Should Know
Expect Delays – Build extra time into your contract to avoid stress.
Check Your Loan Type – Conventional loans may move faster than FHA/VA/USDA during a shutdown.
Confirm Flood Insurance Early – Don’t wait until the last minute if the home is in a flood zone.
Stay Flexible on Rates – Shutdowns can cause rate swings; consider locking early if you see a favorable number.
Stay in Touch With Your Lender – Frequent updates and proactive planning will help you get to the finish line.
What Sellers Should Know
Vet Financing Carefully – Make sure your buyer is pre-approved and their loan program isn’t likely to be stalled by the shutdown.
Be Flexible on Closing Dates – Delays may be unavoidable, so prepare to grant extensions if needed.
Price Strategically – In uncertain times, overpricing can scare off hesitant buyers.
Don’t Panic – Deals may take longer, but most will still close.
Evergreen’s Action to Avoid Delays
4506T: EHL will temporarily suspend the requirement for IRS Tax or W-2 Transcripts to close a mortgage loan & completed 4506-T forms, signed at closing, will continue to be required.
Flood Insurance: In addition, current authorization for the National Flood Insurance Program (NFIP) expires at midnight on Tuesday, September 30, 2025. Unless an extension is authorized, as of September 30, 2025, the NFIP does not have the authority to issue new flood policies or renew existing ones.
Verification of Employment: For borrowers employed by the federal government where a VVOE cannot be obtained prior to closing, EHL may obtain the VVOE after closing, but prior to loan delivery to the investor. As a reminder, if the borrower is in the military, a military Leave and Earnings Statement (LES) dated within 30 days of closing is acceptable in lieu of a VVOE.
EHL will obtain tax transcripts on applicable loans when the federal government shutdown ends. Once tax transcripts are received, EHL will compare the income documents to the transcripts. Loans with discrepancies may be subject to requirements for the buyer to provide additional documentation.
The Big Picture
A government shutdown isn’t the end of the housing market — far from it. Homes will still be bought and sold. But the process may feel stickier, slower, and more unpredictable until Washington gets back on track.
Pro Tip: If you’re considering buying or selling during the shutdown, connect with a local mortgage professional (that’s me!) who can help you anticipate delays and adjust strategy. The more prepared you are, the smoother your path will be.
Let’s end on a positive. Here is the bond market today (10/1) - yield are UP which pushes mortgage rates down. Ever since the fed rate cut, mortgage rates have been ticking back up. Is this what stops the upward trend in rates? Is this all a ploy to force rates down by cutting government spending and reducing our debt deficit?
Only time will tell.
