A federal government shutdown is often seen as faraway political drama in Washington, but it can have very real financial consequences much closer to home — especially for military homebuyers. The effects of a shutdown can ripple through the housing industry, slowing loan approvals, complicating appraisals, and creating delays that can derail closings.
“For military families using VA Home Loans for a home purchase or refinance, the impact can be especially frustrating,” says Jeff Havener, President of AAFMAA Mortgage Services, LLC (AMS). “Understanding how these disruptions occur — and what steps you can take to stay ahead — can make all the difference.”
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The Broader Housing Fallout
When government funding halts, even temporarily, many federal programs that touch the housing market slow to a crawl. One of the first casualties is often the National Flood Insurance Program (NFIP). If the program lapses, new flood insurance policies and renewals stop. This pause can instantly stall transactions because homes in designated flood zones typically require active flood coverage to close on federally-backed mortgages such as VA, FHA, or USDA loans.
A shutdown also interrupts the invisible but essential machinery that keeps loan processing on schedule. Lenders often depend on government services for income and identity verification, like pulling tax transcripts from the IRS or confirming Social Security numbers. When those agencies are short-staffed, lenders must request alternative documentation or wait until systems return online. VA borrowers might experience longer processing times for their Certificates of Eligibility (COE) since fewer staff members can issue them. Even appraisals, though performed by independent professionals, can slow down if federal agencies can’t review or approve related documentation.
“All of these delays can lengthen escrow periods, forcing buyers and sellers to renegotiate contracts or, in some cases, abandon deals entirely,” reports Havener. “The housing market relies heavily on confidence, and uncertainty surrounding a shutdown can make buyers hesitant to proceed — particularly if they fear losing income due to furloughs.”
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Confidence and Cash Flow
Every shutdown has a human story behind it. Federal employees and contractors can miss paychecks for weeks, and even with the promise of back pay, many households face immediate cash flow problems. In regions with large concentrations of government workers — such as Washington, DC, or military communities across the country — this loss of income can quickly slow local real estate activity. Families delay moves, postpone home purchases, or temporarily pause mortgage payments until financial stability returns.
“Economically, the uncertainty tends to push investors toward safer assets like Treasury bonds. This can cause interest rates to dip slightly, which might appear to benefit homebuyers on the surface,” explains Robert Greenbaum, Chief Marketing Officer of AMS. “But lower rates don’t help much if borrowers can’t access loans or close on homes due to administrative delays. Meanwhile, sellers become more cautious, and new listings may decline. It all adds up to a quieter, more tentative market.”
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What Happens to VA Home Loans During a Shutdown
The picture is more nuanced for active-duty servicemembers, Veterans, and surviving spouses using VA Home Loans. The good news is that VA Home Loans are funded through private lenders, not the federal government. That means your lender can still approve and fund a VA-backed mortgage even if certain VA offices are short-staffed. The VA’s guarantee on existing loans remains in effect, and many essential operations continue at reduced capacity.
However, borrowers should be prepared for slower processing times. The issuance of Certificates of Eligibility can take longer when staff are furloughed. Communication between lenders and VA regional offices may also lag, especially if questions arise during underwriting or appraisal reviews. If your home is in a flood-prone area, the NFIP lapse could delay closing until insurance coverage resumes. And if your lender needs to verify income through the IRS, they may ask for alternative documentation such as W-2s, pay stubs, or bank statements instead.
For most military borrowers, these challenges are logistical, not financial. The loan itself remains secure; the issue is timing. A short shutdown might add a few days to the process, while a prolonged one could stretch closing dates or cause contract expirations. The longer the government remains closed, the greater the backlog once operations resume — and that can make the recovery period just as stressful as the shutdown itself.
How Military Homebuyers Can Stay Ahead
Preparation and communication are the best defenses against shutdown-related delays. “Military families can start by staying in contact with their AMS Military Mortgage Advisor and real estate agent,” advises Greenbaum. “These professionals can help track developments in real time and adjust contract dates or contingencies if needed. It’s also wise to begin the VA Home Loan process early, including obtaining a Certificate of Eligibility well before house hunting begins to prevent headaches later,” he says.
Another safeguard is keeping detailed financial documentation on hand. If IRS systems go offline, having recent pay stubs, W-2 forms, or bank statements readily available can help your lender verify income through alternate means. Buyers purchasing in flood zone areas should confirm insurance requirements as early as possible and explore whether temporary or private flood policies might be an option if the NFIP lapses.
Flexibility in the purchase contract can also help. Instead of setting an aggressive closing timeline, consider allowing additional time for unforeseen administrative slowdowns. Sellers familiar with government markets often understand these issues and may be willing to accommodate reasonable extensions. Building a cushion into your schedule reduces stress if delays occur — and shows professionalism and preparedness.
Finally, staying informed matters. Congressional negotiations can shift daily, and a temporary spending measure can quickly restart essential services. A lender experienced with military borrowers — like AAFMAA Mortgage Services — can interpret how legislative changes affect loan timelines and keep your transaction moving when others stall.
We’re Here to Help
Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, an AMS Military Mortgage Advisor, a licensed mortgage loan originator, will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of affordable mortgages designed to meet your needs.
Ensuring Armed Forces Mutual Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today or give us a call at 844-422-3622!