The most recent government shutdown was the longest in U.S. history, lasting 35 days before coming to an end in late January. While all housing-related government agencies are back up and running, the delay created unprecedented challenges for both the mortgage industry and homeowners who didn’t receive a paycheck for more than a month.
For now, there is a 21-day window for business as usual. But on Feb. 15, if political parties don’t come to a meeting of the minds, there is a risk of another shutdown. If you encountered hardships that prevented you from making your mortgage payment or receiving a paycheck, there are a number of things you should do immediately.
It’s also important to know what to expect if another shutdown happens, as well as the effects the most recent one could have on interest rates going forward.
What to do if you couldn’t make your payment
If you were unable to make a payment during the shutdown because you weren’t paid, you could request a forbearance. A forbearance is a delay in your payment due to an unforeseen circumstance. With forbearance, your monthly payment is reduced or eliminated for a period of time. When that’s over, you can generally either make a lump sum payment to bring your mortgage current or spread the additional amount over future payments.
You will need to provide proof that your forbearance request is due to lack of income during the shutdown, such as some kind of written notice from your employer. Fannie Mae’s servicing guidelines allow for up to a 12-month forbearance approval.
Credit bureaus can’t tell which workers were furloughed, or if a late payment was the result of a government shutdown. They simply wait for payment information from lenders, which is why you should contact your mortgage servicer immediately if you anticipate having any problems making payments.
Tips for your mortgage if there’s another shutdown
Keep your mortgage servicer’s name, your loan number and a current mortgage statement handy if another shutdown occurs and you fear you will be unable to make a payment. The sooner you notify your mortgage company about a sudden suspension of income, the better.
As indicated above, they can offer you a forbearance, but that may not prevent credit bureaus from reporting a late payment, potentially dropping your score. If you can document the late payment was due to hardship during another government shutdown, you may still be able to get approved for financing, or dispute a late payment with the credit bureaus so they can note the reason for the late payment on your credit report.
What to do if you had a full month gap in income
If you’re applying for a mortgage or will be soon, you’ll need to show steady income. When lenders analyze your income, they will calculate your year-to-date income as a way to gauge your average earnings. If you weren’t paid for a full month, your income for the year might look unusually low — potentially putting your mortgage application at risk.
Again, the key in this situation is to let your lender know that you were furloughed for the entire shutdown without pay. Any letters or documentation you can get from your human resources department confirming this in writing will be even stronger support. This will help your lender justify approving the loan even with lower average income.
Tips if there’s another shutdown and you are a government employee
If you’re applying for a mortgage and worried that a government shutdown could throw the process into disarray, there are a few steps you can take now.
Lenders generally require the most recent 30 days of income information to preapprove you for a mortgage. If you are a government worker, don’t discard your pay stubs. If you don’t get a physical pay stub, be sure to print one out from your employer’s payroll website to cover your bases.
At the very least, lenders need to be able to contact someone to verify that you are in fact still employed. Find out from your employer if there is a person in your payroll or human resources department who will be available even during a shutdown, and have the contact information handy for your lender.
Disclosure: This post contains links to LendingTree, MagnifyMoney’s parent company.