What Is A Dry Closing And What States Have Wet And Dry Funding?
Scott Steinberg4-minute read
March 23, 2021
What is a dry closing – and does it make sense for your home purchase? That depends entirely on your individual circumstances, which state you reside in, and how you choose to look at the transaction. In effect, a dry closing is a form of real estate closing in which all requirements are met except for the actual disbursement of funds. Put simply, it allows for closing on a home (completion of the sale and purchase transaction) to occur even though payment has not been made yet. Doing so has both advantages and disadvantages that buyers and sellers should be aware of.
The Dry Closing, Defined
A dry closing happens when closing on a home occurs before the buyer and mortgage lender actually distribute the funds that have been earmarked for the new purchase to the seller. All parties involved in the transaction must agree that the closing can take place (and need to sign other closing documentation with the understanding that funds will be forthcoming shortly) in order for a dry closing to occur.
A dry closing typically happens when – for some reason seen or unforeseen – there has been a delay in the financing and funding of the loan necessary for the real estate purchase. However, by the point that all parties get here, funds are generally approved and guaranteed. Should a home seller wish to go forward with such a transaction (which typically involves them receiving payment of the purchase price within a handful of days or weeks), paperwork needs to be executed to this effect.
While it’s not a preferred way for many current or aspiring homeowners to do business, it’s also not uncommon to see happen in the real estate world. That’s because as quickly as all parties to a given real estate transaction may wish to close, lenders may have yet to fully finance the purchase. Likewise, sellers may have yet to resolve outstanding property issues raised by the buyer, or outstanding lending requirements may have yet to be addressed by an aspiring homeowner. A dry closing effectively allows everyone to keep the closing process open and moving forward until all present issues are resolved.
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Why Does Dry Closing Occur?
Dry closings exist as a way to keep deals progressing and provide an added layer of assurance that transactions are valid and legal. Slowing the transfer of funds down provides additional time in which to resolve any issues and ensure that no problems are encountered. To facilitate dry funding, all parties gather together on the day that the loan closes to sign mortgage documents. However, no mortgage funds are provided to the seller at this time. Buyers may favor this option, but sellers and REALTORS® typically like to see money in hand at closing (a “wet” closing) as it allows transactions to be completed upon payment.
Dry Vs. Wet Funding By State
Some states require wet closings (known as wet funding states) and mandate that sellers are to receive funding at the time of closing or within up to 48 hours thereafter. These wet funding states also require that all paperwork needed to close the loan be completed and approved the day the loan closes.
Other states allow financial institutions and real estate professionals to opt for a dry closing if they’d prefer as a means to confirm that a home purchase is legally complete prior to funds changing hands. To facilitate a dry closing, closing documents must be executed and funds approved for lending. As you might image, wet funding is typically the preferred option here by real estate professionals and home sellers alike, as it provides all parties with confidence that the transaction has been formally executed, and money has changed hands.
Dry Funding States
Territories mentioned below fall under the heading of dry funding states. All other states not mentioned on this list are wet funding states instead.
- New Mexico
Note that select states including Alaska and California allow you to select either wet or dry funding, though real estate agents involved in the transaction will ultimately decide which form of funding will be used.
What To Do For A Dry Closing
Has your lender or real estate agent notified you that you will be having a dry closing? Don’t fret – it can be a normal and everyday part of the home sale and purchase process. At the same time, it’s also important to connect with your agent (and mortgage provider, if applicable) to make sure that any outstanding items or requirements necessary to proceed with full loan funding and a sales transaction have been met.
A dry closing is generally just another stop on the road in the process of home purchasing and ownership – and one that can help all parties continue to keep a deal moving forward with confidence. To learn more about closing costs, closing documents, and the steps involved in the process of buying a house, be sure to visit our Learning Center.
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