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If you use a mortgage to buy a home, your home closing can’t happen before the “day of funding.” That’s when all of the lender’s “prior to funding” conditions have been met and the loan proceeds can be wired to the escrow account and distributed to the seller and other third parties like appraisers and real estate agents.
- You may have to supply money for your down payment and costs at closing
- The lender’s “closer” may audit the file, draw the final documents and set up the money transfer
- The escrow agent or attorney distributes funds in accordance with closing instructions from the lender
The title company will also record the transaction with your local government. Until the money is there, the documents are signed, and you are “cleared to close,” your property can’t change hands.
A funded mortgage loan is good news. It means you’ll be able to legally own your property and move in. But the day of funding can vary, and it may not be the same as the closing date. It’s helpful to understand this difference.
The loan funding process can differ, depending on your state. Some states follow “wet funding” rules. Others have “dry funding” requirements. Knowing what this means and entails is important.
Learn what’s involved with funding and when you can expect your loan to fund. The day of funding can be an exciting one—all the more so if you’re prepared.
The day of funding
Funding is the disbursing or wiring of money from your lender to your title or escrow company to pay for the home you’re purchasing. Closing occurs once the local government records the lien against your property, and the transfer of ownership if applicable.
“Usually the funding date is the same as the closing date. But it may be one or more days earlier,” says Realtor and real estate attorney Bruce Ailion. “If no loan is involved, and you’re buying the home with cash, your funds may transfer before the actual closing.”
Knowing the funding date is helpful. One reason is that you pay interest on the loan from that date onward, not from your date of closing.
Complicating matters is that each state follows one of two closing rules: a wet funding or a dry funding.
A wet funding means that all documents required to officially close the loan have to be submitted and approved by the closing date. Here, the lender contacts the title or escrow company before closing; the funding amount that needs to be released or wired to complete the transaction is confirmed.
Once confirmed, your lender will order the wire ahead of time, ensuring that the money is disbursed on the date of closing or up to two days later. This way, the funds can be paid out to the seller and other parties right away.
“Most lenders will not fund until all the loan documents have been signed and reviewed,” says Ailion.
The majority of states in the US allow wet funding.
Dry funding is less common. Here, you and the seller meet to sign your mortgage documents on the loan closing date. Yet all of the paperwork needed to officially close the loan doesn’t have to be finished by that date. No loan funds are disbursed on that date, either.
Instead, the funds are transferred as soon as possible after the closing (sometimes several days later).
Although this slows down the closing process, a dry funding provides extra time to resolve issues. For example, a lender may need more time to check the accuracy of loan documents. Or perform a final audit to make sure the applicant is still employed and has not added to his or her debt load.
You, the borrower, may need to satisfy a lender requirement. Or the seller may need to solve a title problem. Dry funding keeps the closing open until these concerns are settled, and all parties are legally protected.
Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon and Washington are dry funding states. The rest are considered wet funding states.
Funding dates for refinancing
Are you refinancing your mortgage? If the property is your primary residence, your loan won’t fund until three business days after closing.
The reason is that you have the right to rescind (cancel) the transaction during that period. You must request cancellation in writing.
Things to consider
To ensure a smooth funding and closing process, follow these tips:
Be timely with your funds, too. “Your lender may require that you provide a certain amount of cash in order to complete the funding process. This can be money to cover closing costs, document fees, etcetera. If so, then it’s important for you to have that money in your account as early as possible,” says Randy Hopper, senior vice president of Mortgage Lending with Navy Federal Credit Union.
Schedule your closing carefully. “Work with a lender you can trust,” Hopper adds. “Get their advice on when a closing is most convenient, from your perspective, and most realistic, from the lender’s perspective.”
Inquire about anything you don’t grasp. “Ask questions of your loan officer, escrow officer or title agent,” suggests Bill Packer, executive vice president with eLEND, a division of American Financial Resources, Inc. “And never hesitate to retain legal counsel, even if it isn’t required, to make sure your rights are well protected.”
Prepare to take possession. “Once your loan funds, be ready to move into your new home without delay,” adds Packer.
For most borrowers, much of what’s involved in the funding process happens behind the wings and does not involve any effort from them. You sign your documents, you get your house (or your money), end of story. It is valuable to know what’s really happening and how to do your part to make things go well.