If you’re considering buying a home in St. Louis, it’s essential to understand how a government shutdown could affect the housing market and mortgage process. As a mortgage broker at Carlson Mortgage, I want to break down the key impacts for you.

1. Higher Mortgage Rates Are Likely

A government shutdown introduces uncertainty into the market, causing investors who purchase mortgage bonds to demand higher returns to compensate for the risk. This could lead to increased mortgage rates, making it more expensive to borrow.

2. Delays in Home Sales

Lenders are required to verify a buyer’s income before approving a loan. During a shutdown, the Internal Revenue Service (IRS) may stop providing income verification services. This disruption could slow down or even pause the home-buying process for many.

3. USDA Loans Put on Hold

If you’re financing your home with a USDA loan, you may face significant delays. These loans typically halt entirely during a government shutdown, putting transactions at a standstill.

4. Impact on New Construction

Developers and builders relying on government funding for multifamily projects—such as apartment buildings—would see their projects delayed. This slowdown could reduce the availability of new housing options in the St. Louis area.

5. Federal Employees Face Challenges

Federal employees may experience unpaid wages or furloughs during a prolonged shutdown. Reduced income and buying power could lead to delayed closings or even canceled transactions in some cases.

6. What Happens to Fannie Mae and Freddie Mac?

Fannie Mae and Freddie Mac are government-sponsored entities but operate independently from the federal government. While their operations should continue as usual, delays are still possible.

7. VA Loans

Veterans using VA loans can generally proceed as lenders can still order appraisals, obtain Certificates of Eligibility, and submit VA funding fees. However, borrowers with unique situations might encounter delays since HUD offices would be closed.

8. FHA Loans

Most FHA-insured loans can still be processed during a shutdown, except for specific programs like Home Equity Conversion Mortgages (HECM) and Title I loans. Processing delays may occur if the FHA runs out of commitment authority.

Could a Prolonged Shutdown Lower Mortgage Rates?

While a prolonged government shutdown could eventually lead to lower mortgage rates due to its economic impact, this isn’t guaranteed. Historically, the previous four shutdowns over the past decade lasted an average of 14 days.

Simplifying Mortgage Rates for Everyone

Here’s an easy-to-understand explanation of how mortgage rates work:

1. The Federal Reserve’s Role

The Federal Reserve (the Fed) sets a short-term rate that banks use to borrow money overnight. While this rate affects things like credit card interest, mortgage rates are influenced by other factors.

2. Economic Conditions Matter More

Mortgage rates depend on broader economic conditions, such as inflation, employment rates, and economic growth. These factors play a more significant role than the Fed’s short-term rate.

3. Why Mortgage Rates Don’t Always Drop

Even when the Fed lowers its rate, mortgage rates might not follow. Investors set mortgage rates based on their expectations for the future. If they believe inflation remains a concern or the economy could struggle, rates may stay high.

4. Timing is Key

Mortgage rates often change before the Fed takes action. Investors anticipate changes and adjust rates accordingly. By the time a Fed rate cut happens, mortgage rates might already reflect the expected change.

The Takeaway

While the Fed’s rate influences mortgage rates, they don’t move in perfect unison. Mortgage rates follow broader market trends, making it crucial to stay informed.

Final Thoughts

As your trusted mortgage broker in St. Louis, Carlson Mortgage is here to guide you through these uncertainties. If you’re planning to buy a home or need advice about mortgages during a government shutdown, reach out to us for expert assistance.

Ready to Secure Your Dream Home in St. Louis?

At Carlson Mortgage, we’re dedicated to helping St. Louis residents navigate the mortgage process and find the perfect loan for their needs. Our experienced mortgage brokers can help you find the perfect loan to fit your needs and budget and will help you make informed decisions about buying a home. Call or text us at (314) 329-7314 or fill out our loan application at www.carlsonstl.com/apply.ved for a purchase or a refinance mortgage, or if you have any general mortgage lending questions.