There are enough hurdles and potential hangups that can delay the mortgage process under normal circumstances, but many can be avoided with the help of an experienced loan officer or settlement agent. However, when a delay is caused by an unrelated political dispute at the highest levels of the government, it’s out of their hands.
Jessica Herdman, a Pittsburgh-based loan officer with Victorian Finance, LLC, has a home sale that was set to close Jan. 4. Unfortunately for everyone involved, the transaction required approval from an agency affected by the partial government shutdown – the U.S. Department of Agriculture (USDA).
Although USDA loans are some of the most desirable for those who qualify, the fact that the USDA is not signing off on closing documents for these coveted financing mechanisms has made for a nightmarish situation for Herdman’s clients.
“Both seller and buyer are in limbo now, unsure when they will receive their loan proceeds and be able to move into their new house,” she told Dodd Frank Update.
Herdman noted that, prior to the shutdown, the transaction was moving ahead unimpeded.
“This is USDA guaranteed, not direct, and has been under agreement since mid-November,” she said. “All went smoothly until our attempt to submit to USDA for final approval and the clear to close on Dec. 26. We believed USDA was still reviewing loan files at that point, but apparently we missed the cut off on that date, and they’ve been closed since.”
Fortunately, the situation is not dire for either party, yet. The sellers were able to close on another property and move in, and the buyers have a lease on their current residence through the end of January. However, until USDA signs the necessary documents to finalize the transaction, the buyers are in the dark about where they will be living come February.
“At this point I am just praying the shutdown doesn’t persist beyond January, so my clients will not have to worry about finding somewhere else to stay temporarily or paying for an extension in their rate,” Herdman said.
The fact that USDA loans have no downpayment requirements and come with relatively low interest rates and fees for rural and suburban homebuyers makes them a particularly affordable option under normal circumstances. The current delay could impact the latter, which could cause an issue for cash-strapped buyers.
“A big concern for me is the interest rate. We have been able to extend the interest rate so far with no charge to the borrower, but if the shutdown persists beyond the end of this month we could end up in a situation where there is a fee for the rate extension and the borrower may have to pay to extend the rate,” Herdman said. “This is my fear right now, since a big draw of the USDA loan is the lower out-of-pocket costs upfront – most USDA borrowers don’t have a lot of money laying around for rate extension fees.”
The USDA published a list of functions that would continue and be stalled for the duration of the shutdown.