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.” In most states, this practice isn’t allowed. Only a handful of states allow for a dry closing:
AlaskaArizonaCaliforniaHawaiiIdahoNevadaNew MexicoOregonWashington
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 Closing vs. Wet Closing
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.”
