A dry closing is a type of real estate closing in which the entire closing requirements are fulfilled except the disbursement of funds. In a dry closing, all involved parties agree that the closing can still happen and the funds are transferred as soon as possible following the closing. A real estate closing is the completion of a transaction involving the sale or exchange or real estate. In a traditional closing, the title to the property is transferred to the purchaser, and all finances pertaining to the purchase are settled.

Breaking Down a Dry Closing

A dry closing usually occurs when there has been some delay in the funding of the loan required for a real estate transaction. Usually, funds have been approved and are fairly guaranteed. While a normal closing usually includes necessary paperwork and the exchange of funds, a dry closing is performed with no exchange of funds. This could take a couple of days or even a couple of weeks for the funds to be deposited.

Buyers and sellers both prefer wet closings, where possible. Buyers want to get into their new home, and sellers want their money. Buyers do not legally own their new property until their mortgage funds. Sellers have not legally sold their property until funding. However, by state practice or lender preference, mortgages are usually funded quickly, within 24 to 48 hours.

Dry closings are not uncommon and frequently happen for varied reasons. In some cases, a dry closing happens if a lender hasn't yet financed the transaction. In other cases, a buyer may still need to satisfy a condition with the lender, or a seller might have to resolve an issue with the property before a buyer will close. In any such scenario, a dry closing holds the closing open until the issues are resolved and the parties can complete the closing process.

Other Reasons for Dry Closings

Sometimes dry closings occur because lenders prefer to review closing documentation before releasing loan funds. This strategy puts pressure on the closing agent to correct documentation problems before the mortgage is funded. Some states, such as California, are dry funding states. These closings are not true closings at all. Buyer and seller get together to sign documents only. The prevailing opinion in these states is that dry closings assure lenders, buyers, and sellers, that a home purchase is legal and complete before funding since no funds change hands until all documentation is submitted.