Funding a Loan for a Mortgage
The process can vary a little from state to state
"Fund" is a verb used to describe the process of wiring or releasing money from a mortgage lender to title or escrow prior to closing a real estate transaction. Interest is charged from the day of funding, not from the date of closing, because funding often occurs a day or two before closing.
The Funding Process
The process of funding a loan differs from state to state, but it typically doesn't place until all the loan documents have been signed and all the funding conditions have been satisfied. A homebuyer will sign loan documents a few days before the actual closing takes place in California, but closing typically takes place the same day a buyer signs the loan documents on the East Coast.
This funding process is common in northern California. We now have TRID guidelines, which basically eliminate the way financing was completed for more than four decades.
What Does it Take to Fund a Loan?
Part of the TRID process requires sending a closing disclosure to the buyer a few days prior to signing the loan documents. The buyer is then permitted to sign the mortgage documents after the appropriate time has passed. Some of the paperwork will seem identical to other documents, and some of it is. Still, it all needs to be signed if you want to fund your loan.
Loan documents also require notarization. This 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 your private home or place of business.
After all the loan documents and escrow paperwork have been completely signed by all parties, the loan documents are returned to the lender for review. Underwriting is likely to require all loan conditions to be completed at this time as well.
There are some circumstances where the loan documents aren't drawn in the first place if the loan conditions aren't satisfied. This is called "prior to doc", but many lenders will require the loan conditions completed just prior to funding.
Loan conditions might call for an appraisal review or something much simpler, like receipt of all 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 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 lender will prepare to fund the loan after it reviews the executed loan documents. This generally means wiring all the loan monies to the title or escrow company. When the wire is received by the closing agent, the file is in a position to record.
We have a number of recording times available to us throughout the day in Sacramento County, California, but there might be only one time available to record in other counties and states. This means that if the fund wire is received too late in the day to make a sole recording time in locations here only one time is available, the transaction won't close until the following day.
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.
Many transactions fund and close on the same day, but some lenders prefer to fund the day before closing.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.