A dry closing happens when the date to close your real estate transaction arrives but the mortgage loan has not yet been funded. In this scenario, both parties agree to close anyway with the understanding that the loan will be funded at a later date.
A dry closing is the opposite of a wet closing, and whether or not you end up with the former will depend on your state’s laws. Let’s take a look at what a dry closing is, how it works, and how it’s different from a wet closing.
Definition and Examples of Dry Closings
Completing a real estate transaction requires a lot of work—from recording a multitude of documents to updating the title and disbursing funds. The plethora of actions required to successfully close can be time-consuming. Sometimes one or more of these processes can be delayed, which results in loan funds being unavailable on the actual day of closing.
When this happens, the people involved in the home closing can choose to complete closing anyway. In other words, they’re moving ahead with the transaction and filing all the paperwork with the expectation that the funds will arrive soon. This is called a “dry closing.”
The time required to disburse mortgage funds during a dry closing can vary; some loans may be funded the next business day, but it can take up to four days to receive your funds.
In most states, this practice isn’t allowed. Only a handful of states allow for a dry closing:
- New Mexico
In all other states, the loan must be fully funded once all the loan documents are signed and closing occurs.
- Alternate name: Dry funding
How Dry Closings Work
Let’s say that you’re selling your condo in San Diego. In California, real estate transactions are nearly always closed when dry. It’s a seller’s market, so you’ve had some serious competition when it comes to offers, but instead of going for the lower, all-cash offer, you decided to accept a bid well over asking with a 45-day escrow.
As far as you can tell, things have been going well with the borrower, and the date to close has drawn near. On the day of closing, you both sign all the documents—but instead of a check (or wire transfer) in hand, your realtor lets you know that the funding package has to go back to the lender for a final review.
Although this may come as a surprise, your realtor assures you that you won’t need to hand over the keys until the funding has been completed. Two days later, the funds arrive, and only then do you relinquish possession of the property to the buyer.
Perhaps, had you realized dry funding could occur, you would have preferred to go with the all-cash offer. In this case, the funds would have already been available and neither you nor the buyer would have had to rely on a funder to disburse the money.
Dry funding can be more flexible than wet funding since the entire transaction can be completed over multiple days.
Dry Closing vs. Wet Closing
|Dry Closing||Wet Closing|
|Real estate transaction completed when all documents are signed||No||Yes|
|Post-signing review by funder||Yes||Yes|
|Time to disburse funds||1-4 days||Immediate|
|Legal in all states||No||Yes|
The long and the short of it is this: A dry closing allows additional time for everything to be pulled together after all the documents have been signed; this additional time lets the ink “dry.” It provides the buyer and seller some assurance that the sale will go through even if there are hiccups in the closing process.
A wet closing, meanwhile, must ensure that the entire transaction is completed all at once; this tight timeline means the transaction is closed while the ink is still “wet.”
- A dry closing occurs when funds aren’t available for disbursement as the loan documents are being signed.
- Dry closings can be used to close a real estate transaction with the expectation that the loan will be funded within four business days.
- Most states don’t allow dry closings.
JVM Lending. "Wet Funding vs. Dry Funding: Why It Matters."
Rocket Mortgage. "What Is a Dry Closing and What States Have Wet and Dry Funding?"