What is a dry closing in real estate?

Imagine you’re about to close on a house. Typically, you’d sign closing documents, transfer funds, and receive the keys to your new house. A dry closing, however, is different. You still close on the property, but payment is postponed.

Read on to learn more about how a dry closing works, whether your state allows it, and what the implications are for the buyer and seller.

How does a dry closing work?

In a dry closing, also known as dry funding, payment is typically transferred a few business days after signing the closing documents. This is usually because the buyer’s loan still needs to be finalized. Once the loan requirements are fully met, the lender will disburse the funds.

Of course, all parties involved must agree that no funds will be exchanged at the closing table. Instead, closing documents are still signed, but the seller may withhold possession until funds have been disbursed and the deed has been recorded. The title typically transfers upon recording.

Wet closing vs. dry closing

A wet closing is the more common process, when funds are disbursed immediately after the closing paperwork is signed and lender requirements are met. As a result, wet closings offer a faster, more straightforward timeline with less risk of funding falling through.

All else equal, wet closings are preferable to dry closings — for sellers and buyers — because they ensure both parties receive their end of the transaction on the same day, avoiding the potential frustration of delays and complications.

What are the dry funding states?

Dry closings are legal only in Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon, and Washington. In most other states, wet funding is standard, and funds are typically required at closing

Consult a real estate agent or attorney to learn more about the home buying rules in your state.

Why would a dry closing occur?

Dry closings typically occur to keep a deal moving.

For example, the buyer’s lender may need additional time to approve the loan or collect closing costs. Conversely, the seller may request a dry closing if they're unavailable on the appointed closing day and wish to sign the closing documents early.

Whatever the reason, a dry closing can keep a purchase and sale agreement moving while still providing assurance and consumer protection for a valid and legal real estate transaction.

How does a dry closing affect buyers?

A dry closing can benefit buyers by providing extra time to gather funds or address funding issues. However, there are some drawbacks and risks to consider.

For instance, a dry closing may interfere with your moving schedule, signal larger title and contingency issues, and draw increased scrutiny from your lender. In the worst-case scenario, the deal could fall through entirely.

How does a dry closing affect sellers?

A dry closing can offer sellers the assurance that a transaction will proceed legally, potentially saving the deal even amid financing delays.

That said, potential drawbacks and risks include (but aren’t limited to): delayed receipt of funds, default risk, impacted move-in timeline, and overall uncertainty about the deal. Consult a real estate attorney about whether a dry closing is advisable in your situation.

How to proceed with a dry closing

If you’re interested in pursuing a dry closing (as a buyer or a seller), connect with a real estate agent or attorney to ensure any outstanding transaction items and requirements are addressed. Ask them any questions you have about the process and what to expect.

Generally, the dry closing will proceed the same way as a wet closing, except the buyer won't be required to transfer funds immediately. Instead, the seller will expect to receive those funds within a reasonable, agreed-upon timeframe.

FAQ about dry closings

Here are answers to some frequently asked questions regarding dry closings.

How can I prepare for delays associated with a dry closing?

As a seller, you can prepare for delays due to a dry closing by maintaining a cash reserve for housing expenses, adjusting your moving timeline (e.g., so you buy your next house when you sell), and staying in close contact with the buyer’s lender so you know when to expect payment.

Can the seller ever refuse a dry closing?

Yes, a seller can refuse a dry closing. However, they may risk the deal falling through.

Can the parties switch from a dry to a wet closing?

Yes, buyer and seller can switch from a dry to a wet closing, e.g., if the buyer’s funds become available sooner than expected.

What happens if my loan falls through after a dry closing?

If underwriting fails after a dry closing, the sale is incomplete, and you may lose the home and forfeit your earnest money — unless you can renegotiate an alternate form of funding.

Is a wet closing allowed in dry-funding states?

Yes, dry funding states allow dry closings in addition to wet closings.

The bottom line: Understand the risks before agreeing to a dry closing

A dry closing lets buyers and sellers close on a real estate transaction while deferring the transfer of funds to a later date (typically a few business days). While this arrangement can keep a deal alive when financing delays arise, it comes with risks for both parties, including disrupted moving timelines and even potential deal failure. Furthermore, dry closings are only permitted in a select few states, so they’re not an option for everyone.

Before agreeing to a dry closing, ensure you understand your state’s laws and carefully weigh the risks. Speaking with a real estate agent or attorney can help you make the right decision.

Ready to take the next step toward homeownership? Apply for a home loan with Rocket Mortgage today.