Notes about funding
“Your mortgage loan has been funded!” – excellent news for every homebuyer, isn’t it? Especially when it means that you will finally be able to own and move into your own house legally.
The funding day does not equal the closing day, however, and it’s essential – to understand the difference.
The funding day is an exciting one, especially if you are well-prepared. Depending on the state, the loan funding methods may be different. For example, some states stick to “wet funding” regulations, while others require “dry funding”.
Let’s dive into explaining what this implies and involves and when you can expect your loan to be funded.
The funding day
The whole process of transferring funds from your lender to your title or escrow firm is referred to as funding. What’s after this step? First, the local government registers the lien against your property and, if needed, the transfer of ownership.
Usually, the funding date matches the closing date. However, it might be one or more days earlier. If there is no loan involved and you’re buying the house with cash, your monies may be transferred before the actual closing.
Better to be aware of the financing deadline because you’re starting to pay interest on the loan from that very date, not from the day of closing.
Wet funding
What does ‘wet funding‘ implies? All paperwork should be filed and authorized by the closing. Before closing, the lender calls the title or escrow business to confirm the financing amount issued or wired to complete the deal.
Once verified, your lender will order the wire ahead of time, guaranteeing that the funds are distributed on the closing date or within two days. In this manner, the cash may be sent to the seller and other parties as soon as possible. Most lenders will not finance a loan unless all mortgage paperwork has been signed and checked.
Note: Wet financing is permitted in the majority of states in the United States.
Dry funding
Nowadays, ‘dry funding‘ is less common. On the closing day, you and the seller will meet to sign up the mortgage papers. However, all documentation required to close the loan formally does not have to be completed by that date, and no loan money is issued as well.
Instead, the money is transmitted as quickly as possible after completing the transaction (sometimes a few days later).
Although this in some way slows the closing process, ‘dry funding’ gives you more time to settle difficulties. A lender, for example, may require additional time to verify the correctness of loan paperwork or to do a final inspection ensuring that the applicant is still working and etc.
You, as the borrower, may be required to meet lender criteria, or the seller may have to resolve an ownership issue.
Dry financing keeps the transaction open until these problems are resolved, and all parties are legally protected.
Consider the following
Follow these guidelines to guarantee smooth funding and closing process:
- Be accurate with your cash. To finish the funding transaction, your lender may ask you to give a particular amount of cash. For example, it can be money for closing costs, documentation fees, and so on. If this is the case, you must have the funds in your account as soon as possible.
- Plan your closing carefully. Work with a lender you can trust, and seek their opinion on when closing is most convenient for you and most feasible for the lender.
- Ask about everything you’re unsure about. Inquire with your loan officer, escrow officer, or title agent, and don’t be afraid to seek legal assistance to ensure your rights are well-protected.
- Get ready to take control. When your loan is approved, be prepared to move into your new home as soon as possible.
For most borrowers, much of the funding process occurs behind the scenes and requires little effort on their part. You sign your paperwork, you get your house or your money, and that’s the end of the tale. However, it’s good to understand what’s going on and what you can do to help things move smoothly.
