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.

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