Sequestration, Government Budget Cuts And Refinancing Loans--How Are All These Things Connected?

There has been a lot of news lately about sequestration--the budget cuts that could happen as a result of lawmakers in Washington not finding an alternative Federal budget solution before the deadline on March 1.

“Furloughed food inspectors could force some processors to shut down. The IRS has warned that your tax refund will be delayed if there are fewer workers to review and process your return. With fewer workers showing up at the FBI and Justice Department...”

That is according to a news report filed on NBC.com, which explains sequestration--a complicated issue--in a few simple sentences. “As the clock ticks down in another federal budget battle,” NBC’s John Schoen writes, “warnings are growing more dire about the consequences of not reaching a deal by the end of the month. The so-called budget sequestration would force about $85 billion worth of across-the-board spending cuts that would ripple through the federal government and broader economy.”

What does that mean for anyone trying to refinance a home loan? It depends. If you are applying for an FHA or VA refinance loan, you could (depending on circumstances) experience delays based on any type of FHA approval (where applicable) needed to make your loan happen.

Not all borrowers will experience delays with refinancing, but those who need government assistance or approval (VA loan assumptions are a good example, as are certain kinds of “prior approval” refinance loans from the VA or FHA) may be affected.

Do you need to consider this when making your refinance loan application? Yes. Will it kill off your refinance? Unlikely, but borrowers should definitely assume they may have a longer wait before loan approval under some conditions.

Sequestration is an important issue, but borrowers trying to refinance who anticipate delays should the “worst case scenario” actually come to pass? They’re the ones who will likely have the best time navigating the refinance process as it might be affected by government shutdowns or furloughs because of the issue.

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