Funding a Loan for a Mortgage
The term "fund" refers to the process of wiring or releasing money from a mortgage lender to title or escrow prior to closing a real estate transaction. Funding often occurs a day or two before closing, and you can't close unless and until it happens.
The Funding Process
The process of funding a loan differs from state to state, but it typically doesn't take place until all the loan documents have been signed and all the funding conditions have been satisfied. A homebuyer often signs loan documents a few days before the actual closing, but this can vary by state. Closing can sometimes take place the same day a buyer signs the loan documents in some areas of the country.
Expect the lender to do one final check of your credit and employment status at the very end of the process but before any money changes hands. A buyer might think her loan is a sure thing so she runs out and buys a house full of furniture—on credit—in the days before funding. This move can be disastrous if you had a borderline credit score to start.
What Does Funding a Loan Take?
A closing disclosure is sent to the buyer a few days prior to signing the loan documents. The buyer is then permitted to sign the mortgage documents. If some of the paperwork seems identical to other documents you've already signed, it is. Everything must be signed regardless if you want to fund your loan.
Loan documents also require notarization, which means producing two acceptable forms of identification and placing your signature on certain documents in the presence of a notary public. Many title and escrow company employees are notaries. You can also sign with a mobile notary in the privacy of your home or at your place of business.
The loan documents are returned to the lender for review after all the parties have completed signing the escrow paperwork. Underwriting is likely to require that all loan conditions be completed by this time as well.
Wet Closings vs. Dry Closings
The lender prepares to fund the loan after reviewing the executed loan documents. Funding generally means wiring the loan monies to the title or escrow company. The exact timing depends on whether it's a wet closing or a dry closing.
Regardless of whether you're the buyer or the seller, you'll want a wet closing, which means the lender wires the funds immediately on the day of closing. The money is present and accounted for at that time, typically in the title company's bank account.
If you sign everything and then have to wait for the lender to review all the documents one more time, that's a dry closing. It can occur when a lender has not worked with a particular title company before so the lender doesn't have the comfort level necessary to trust the title company with a final review of the paperwork. State law also matters. For example, all closings in California are dry closings. The delay associated with a dry closing is usually no more than two to four days.
Refinancing and the Right of Rescission
The process of refinancing is almost always a dry closing because, as the borrower, you typically have a right to rescind or cancel the transaction for 72 hours after closing. You can waive your right to rescission at closing by signing the required document, but your lender still might not release the funds until the rescission period has passed.
The loan documents might not be drawn up in the first place if loan conditions aren't satisfied. It's referred to as "prior to doc" when conditions must be met before documents are drawn, but many lenders require that the loan conditions be completed just prior to funding.
Loan conditions might call for an appraisal review or something much simpler, like receipt of all the pages of a bank account—even the blank pages. A loan condition for a new home might call for all the appliances to be installed and in working order prior to closing. A loan condition with an FHA loan could require that someone physically pick up and dispose of paint chips found lying around the perimeter of the house. You never know what a loan condition might require.
The Last Steps
The file is in a position to record when the closing agent receives the wire. There might be only one time available to record in some counties and states, so the transaction won't actually close until the following day if the fund wire is received too late in the day to make the sole recording time.
Receipt of the loan funds is crucial to closing the sale of your home. You can expedite your home closing by asking in advance when the title or loan closer expects to receive the loan funds and whether same-day closing is possible.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.