What Is A Dry Closing And What States Have Dry Funding?

Typically, when a home buyer and home seller reach the closing table, documents are signed, funds are transferred over to the seller and the keys are handed over to the buyer. But this isn’t the case with a dry closing. At a dry closing, the buyer and seller close on the home but no payment is made.

Whether a dry closing makes sense for you will depend on your individual circumstances and the laws in your state.

What Is A Dry Closing In Real Estate?

A dry closing is a type of real estate closing when funds are disbursed a few business days after closing documents are signed and mortgage lender requirements are satisfied. For a dry closing to proceed, all parties involved in the transaction must agree that the closing can take place with the understanding that the documentation will be signed and the funds will be disbursed at a later date.

Wet Closing Vs. Dry Closing

While a dry closing allows buyers to pay several business days after signing closing documents and satisfying lender requirements, a wet closing requires buyers to pay right at the closing table. While buyers may favor dry closings for their flexibility, real estate professionals and home sellers typically favor wet closings because it’s immediate assurance that the transaction is complete and the money has changed hands.

How Does A Dry Closing Work?

A dry closing typically happens when there has been a delay in the financing and funding of a mortgage for a real estate purchase. Should a home seller wish to move forward with the closing, the paperwork will be signed and completed like a typical closing. The crucial difference is that even though the loan funds are generally approved and guaranteed, the parties involved in the transaction agree there will be no exchange of funds at the closing table.

Why Does Dry Closing Occur?

Dry closings allow home purchases to keep progressing and provide an added layer of assurance that transactions are valid and legal. Slowing the transfer of funds provides the closing agent with additional time to resolve any issues and gives the lender extra time to collect closing costs.

Are Dry Closings Common?

While dry closings are typically not preferred by sellers and real estate professionals, it's not uncommon to see dry closings in the real estate world. As quickly as all parties want to close, lenders might not have finalized the loan funding. Likewise, sellers may have outstanding property issues to settle, or buyers may still have lending requirements to fulfill. A dry closing effectively allows everyone to keep the closing process moving along until all issues are resolved.

Are Dry Closings Legal?

Dry closings are only legal in certain states. Those that don’t allow dry closings are known as wet funding states. In wet funding states, sellers receive funding at the time of closing or up to 48 hours later, and all paperwork needed to close the loan must be completed and approved at closing.

Banks and real estate professionals can opt for a dry closing if the closing is taking place in a state that allows it. A dry closing allows all parties to confirm that a home purchase is legally complete before funds are transferred. To facilitate a legal dry closing, all closing documents must be signed and loan funds approved for disbursement.

Dry Funding States

Dry closings (or funding) are allowed in these U.S. states:

• Alaska
• Arizona
• California
• Hawaii
• Idaho
• Nevada
• New Mexico
• Oregon
• Washington

Disadvantages Of Dry Closings

A dry closing benefits buyers by offering additional time when they experience delays. However, buyers can experience disadvantages as well. For example, a dry closing can fall through for many of the common reasons home sales fall through, such as pending contingencies or title issues.

Sellers are also exposed to risks with a dry closing. The extra time added to the typical closing process timeline may not work for sellers who want a quick sale. Many sellers want to use the sale proceeds to move into their new home as soon as possible. A dry closing could delay their plans.

What To Do For A Dry Closing

Has your lender or real estate agent notified you that you’ll be having a dry closing? The first step is to connect with your agent or real estate attorney to make sure any outstanding items have been resolved and all requirements have been met. They can answer any questions you have about preparing for closing, including what to bring to closing.

The Bottom Line: Know The Risks Before You Agree To A Dry Closing

A dry closing can help a deal move along – but it has some disadvantages. A dry closing can be helpful if the buyer or seller needs a few extra days to finalize any unresolved contingencies. However, the extended timeline also increases the potential for financing or contingency mishaps. Ask your agent if dry funding is legal in your state. If it is, get their expert advice on whether it would be a good idea for your home purchase.

Rocket Mortgage^® can guide you through each step of the home buying process, from initial mortgage approval to closing. Start an application for initial mortgage approval online.