FHA Loans Will Stop With Government Shutdown

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A potential government shutdown could be the reason you have to wait to buy or sell a home.

Federal House Administration Mortgages, more commonly known as FHA loans, will be halted if there is a government shutdown.

With FHA loans, borrowers still get the loan from a mortgage broker but the loan is insured by the federal government.

Don Earman, the branch manager at Benchmark Mortgage Inc., explains the lender advances the money in the beginning but then it sells the loan to what's called Ginnie Mae, or the Government National Mortgage Association.

Ginnie Mae then reimburses the lender.

Earman says between 30 and 35 percent of the loans through his office are FHA insured.

"That's actually where most people will probably be hurt the most, is that anybody that's already applied for an FHA loan may be held up, and not be able to close for a while," says Earman.

He explains that mortgage lenders will likely continue to do the mortgage loan applications and will go through assuming that the funding will come through at some point.

They'll just hold off on closing.

"The basic FHA program, I don't see it going away, it should continue. It's a very good program, it helps a lot of people get into houses that otherwise wouldn't be able to," says Earman.

A conventional loan will generally start to tack on higher rates for someone with a credit score below 720. With an FHA loan, your score can be as low as a 640 without the higher rates low credit scores may cause.

FHA loans also allow for other perks such as smaller down payments and the ability to have the down payment paid by someone else as a gift.

"Usually the big banks will act faster than anybody else, they're probably worrying about it. But, at this point nothing has been coming down," says Earman.

Still, Earman explains most lenders ultimately aren't going to lend any of the money unless the FHA insures them.

"I'm hoping within a few weeks they'll get this done, but you never know," comments Earman.