When a real estate contract is signed, it usually means that everything is agreed and finalized. That's the rule, but every rule has its exception. When closing a house, dry closing is the exception.
A dry deal occurs when the seller and buyer agree to close a deal without exchanging money, usually to buy time. The paperwork is done, but the buyer doesn't receive the keys and the seller won't receive the financing for a few days.
Dry locks are not common or legal in most states, and they are not the norm. But in certain situations, they can help make the home sale experience less stressful for everyone. In this article, we share everything you need to know about dry closings and how they differ from wet financed homes.
Dry closing: what is it?
A dry closing is an agreement between a buyer and seller to close a home without financing the purchase that day.
During a typical mortgage deal, the mortgage and title documents are signed, the loan is funded, and title is transferred from the seller to the buyer. This common scenario is popularly known as wet financing (or wet closing) because the transaction is completed before the ink dries on the paperwork.
Sometimes it doesn't work that way. This is where a dry close comes into play.
A dry close involves signing the mortgage and title documents, meeting the lender's requirements, and completing all other elements of the home buying process, but no money is paid out. It takes a few business days for the lender to fund the loan and for ownership of the property to pass to the buyer. By this time the paint has dried, which is why it is referred to as a dry seal.
Why do dry curls appear?
Dry closures are not common. The practice is only legal in some states. But there are a few reasons why a dry shutdown can occur.
The buyer's lender has financing problems
Mortgage lenders (like banks, credit unions, and online lenders) can occasionally have trouble getting funding. Whether the problems are due to technical difficulties, a backlog of applications, or a misplaced form, funding can be delayed for a variety of reasons.
When a lender needs to buy more time to fund a loan, the seller and buyer can agree on a dry deal that allows them to close without funding and be ready as soon as the lender is able to release the funds. This allows both parties to avoid unnecessary delays.
The buyer must first sell his house
In a perfect world, every homebuyer would sell their home and use the proceeds as a down payment on their new property. Unfortunately, this is not always the case.
If a buyer is selling their home the same day or days before buying a new one, a dry closing can offer a solution. Once they receive the proceeds from the sale of the house, they can pay the cost of buying the house.
While a dry deal could serve as a solution for buyers in this situation, it's important to note that adding a home sale contingency to your purchase proposal would be a less risky approach.
The lender's requirements were not met
A lender may require certain information to be provided or repairs to be performed before funding a loan. When closing day approaches and a repair isn't complete or important information is missing, a dry close can help keep the deal together until things are sorted out.
Which states allow dry financing?
There are nine states of dry finance:
- Alaska
- Arizona
- California
- Hawaii
- Idaho
- Nevada
- New Mexico
- Oregon
- Washington
Just because dry locks are legal in those states doesn't mean that dry locks are the norm. A dry close is generally preferred unless a circumstance causes real estate professionals to consider a dry close.
How does dry sealing work?
During a wet closing, the mortgage and title documents are signed, the loan is funded, and title is transferred from the seller to the buyer. This is the image of social networks par excellence. The one with the big smile on his face, the buttons raised across his face and the "So I did something, y'all!" Category. While financing may take a day or two to process, 100% closing occurs on the day of closing.
A dry finish is a little different. On the closing day, the mortgage and title documents are signed but the buyer does not receive the keys and the seller does not receive the mortgage for a few days.
Once the loan is funded, ownership of the property officially passes to the buyer.
How should you prepare for a dry shutdown?
whether wetclosureIn a dry deal, the buyer and seller sign various documents at the closing table. This usually includes the mortgage, the deed of trust or the suretyship deed.and title insurance.
In addition to signing the standard documents, buyers and sellers should consider a few things when dry closing:
For buyers
Buyers must have a solid understanding of their financing. They need to know how much cash to bring to the table and when to make it available. In some cases, the buyer can wait until the loan is funded to transfer the deposit, but this varies by lender.
Buyers should also take care of a place to stay, because they can only move into their new home once the loan has been financed and the keys have been handed over.
For sellers
Sellers need to understand that they don't get their money right away. In some cases, the seller can make a deal with the buyer, e.g. B. Renting the property for a few days so the buyer has a place to stay until they close their new home.
A dry close can be a bit more complicated than a wet close, but as long as both parties know what to expect, a dry close can be helpful.
Risks of dry closing
Dry closures have some potential downsides, but they're more of an inconvenience than a major problem that could cause funding to drop.
Since both parties must agree to a dry close, it is helpful to know what risks buyers and sellers face.
- Longer closing process:Instead of the typical 3 days from closing disclosure to the closing table, after a dry close, both parties have to wait a few more days before receiving their respective bid: payment to seller and final property to buyer.
- Questions about contingencies:In a typical real estate transaction, there are oftencontingenciesthat must be met before a sale is completed. When a dry deal is necessary because contingencies have not been met, there is always concern that the deal will fail.
Dry deals don't mean dead deals
Although dry shutdowns come with some risks, remember: business isn't dead when a dry shutdown is required. In many cases, a dry shutdown is simply a way to buy a little more time to get everything in order.
If you're in the process of buying a home and a dry deal is suggested, now you know it's no big deal. Yes, it may still be a few days before you fully own your new home, but this strategy may be just what you need to get there financially!