Dry Closing Explained: What Home Buyers and Sellers Need to Know

A dry closing is a real estate transaction where all documents are signed, but the loan funds are not disbursed on the same day. While this can prevent a deal from falling apart due to minor last-minute delays, it introduces significant risks, including delayed move-ins for buyers and postponed proceeds for sellers. Dry closings are permitted in some states, like California and Washington, but are prohibited in others that mandate same-day "wet funding." Understanding the process, risks, and how to prepare is crucial for navigating this type of closing successfully.

What is a Dry Closing in Real Estate?

A dry closing (or "dry funding") occurs when the buyer and seller sign all the necessary closing documents, but the lender does not wire the mortgage funds until a later date, typically the next business day. The transaction is not legally complete until the funds are received and disbursed by the title company or closing agent. This means the buyer does not take ownership, and the seller does not get paid until the funding is finalized. This practice contrasts with a wet closing, where funds are disbursed simultaneously with the signing, finalizing the deal immediately.

How Does a Dry Closing Work?

The process closely mirrors a standard closing but hinges on the timing of the fund transfer. Based on our experience assessment, it typically unfolds in these stages:

1. Document Signing: All parties meet to sign the closing paperwork, including the mortgage documents, the deed, and various disclosures. The buyer’s loan has conditional approval, pending final checks from the lender.
2. Funds Are Held: The lender delays wiring the money. This can be due to internal backlogs, final verifications (like a last-minute check of the buyer’s employment), or missing a bank’s daily wire transfer cutoff time. The signed documents are held in escrow by the title company.
3. Transaction in Limbo: On paper, the signing is complete. However, legally, the property ownership does not transfer. The buyer cannot receive keys, and the seller does not receive proceeds.
4. Funding and Disbursement: Once the lender releases the funds (usually the next business day), the title company records the deed, pays off any existing liens, disburses the seller's proceeds, and officially transfers possession to the buyer.

Why Would a Lender Delay Funding with a Dry Closing?

Dry closings are typically not the first choice but a practical solution to specific hurdles. Common reasons include:

• Lender Processing Delays: Final underwriting reviews or verifying that all conditions have been met.
• Banking Logistics: Missing a same-day wire transfer deadline, which can be as early as 2 p.m. local time.
• Document Issues: The title company may require a final certification or an updated payoff statement.
• Weekends and Holidays: Transactions cannot be funded outside of standard banking hours.

Dry Closing vs. Wet Closing: What's the Difference?

The fundamental difference is the timing of the funding. In a wet closing, the lender wires the funds to the title company before or at the time of signing. The agent can immediately disburse payments and record the transaction, making the sale legally binding within hours. A dry closing creates a gap of at least one business day between signing and funding, leaving both parties in a state of uncertainty until the money arrives.

What Are the Risks of a Dry Closing for Buyers and Sellers?

A dry closing can keep a transaction on schedule, but it introduces unique risks that both parties must consider.

For Buyers: The primary risk is a delay in taking possession. Buyers cannot legally move in or receive keys until funding is complete. This can disrupt moving company schedules, travel plans, and temporary housing arrangements. There is also a small but real risk that the loan could fail to fund at the last minute, causing the entire deal to collapse.

For Sellers: The main risk is a delay in receiving the sale proceeds. Sellers do not get paid until the funds are disbursed. This can be problematic if the seller needs the money to close on their next home on the same day. If the buyer's financing falls through, the seller must relist the property and start the selling process over.

Is a Dry Closing Legal in My State?

State regulations governing real estate closings vary significantly. Dry closings are common and accepted in many Western states, including:

• California
• Oregon
• Washington
• Nevada
• Utah

Conversely, many states in the South, Northeast, and Midwest require wet funding, meaning funds must be available at the time of signing for the transaction to be valid. Laws and local customs can change, so it is essential to confirm the rules in your specific area with your title company or real estate attorney.

Key Preparation Steps if You Are Facing a Dry Closing

If your agent informs you that a dry closing is likely, proactive planning can mitigate potential stress.

• Maintain Open Communication: Check in daily with your lender during the final week to get updates on the funding status and any outstanding conditions.
• Coordinate Logistics with Your Agent: Your real estate agent can manage expectations with the other party and negotiate flexible possession timing if move-in is delayed.
• Build Flexibility into Your Plans: Schedule moving trucks with flexible timing, have a contingency fund for temporary storage or hotel stays, and avoid scheduling essential services at your new home for the exact closing day.
• Be Prepared for a Wet Closing: Sometimes, lenders resolve issues quickly and can fund the same day. Have your government-issued ID and cash-to-close funds ready to wire early, just in case.

The most critical step is to confirm your state’s rules and maintain flexible moving plans to accommodate the inherent uncertainty of a dry closing.