5.5 million homes were sold nationwide in 2017, despite the bleak economic forecasts. While the naysayers will say the real estate market is dead, many families are buying homes. This is because they’ve found ways to fund their homes.
As a matter of fact, the projected forecast is set to increase to 6.3 million in 2018.
Whether you’re buying or selling a home, you should be familiar with all of the terms associated with your transaction. If you’re wondering, what does funding mean, then you’ve found your answer.
Keep reading to learn more about the real estate closing process and how and when funds are dispersed.
What Does Funding Mean?
If you’re looking at the real estate market funding, the first thing you should do is educate yourself. Funding is the process of having the mortgage lender release funds to the escrow before closing a real estate transaction.
And since funding occurs a few days prior to the close of the transaction, the interest rate kicks in from the date of funding.
In the US, the funding process differs in every state according to state laws. For any funding to be granted, all the conditions of the lender need to be satisfied. Loan documents must be signed.
Take California for example. Buyers of new homes sign loan documents and the closing take place a few days or even a week later. This is also called a dry closing.
This is unlike other states, particularly the East Coast, where closing occurs the day the loan documents get signed. This is called a wet closing.
An example of the mortgage process is described further. So read on.
What Do You Need to Fund a Loan?
First, the TRID (TILA RESPA Integrated Disclosure) is now required by law. According to the TRID process, before you can sign loan documents, a closing disclosure is sent to the buyer. After the mandatory, three-day waiting period, the buyer is permitted to sign mortgage documents.
This may seem like a lot of paperwork, but TRID was created to simplify mortgage documentation. It was also made to make documents easier to understand, curtail fees for home buyers and prevent unforeseen issues at closings.
If you want your loan to get funded, you must sign all these documents.
Notarization of The Documents
Documents submitted for loan purposes require notarization. So, buyers will have to carry two forms of identification and sign them in the presence of a public notary.
But fear not.
Anticipating the needs of the business, many escrow employees and title company workers are also public notaries themselves. If you’d prefer, you can also get a mobile notary to come over at a location of your choice.
The Input of Underwriters
Once all concerned parties have signed the loan documents and paperwork for the escrow, they send it to the lender for review. This is where underwriters come in. They study the loan documents and assess how much risk the lender is assuming.
They consider the land, the property, and the borrower. Real estate underwriters are different from securities underwriters. These people specialize in real estate, appraise the value of the property and the credit health of the borrower prior to making their report.
Underwriters start work only after the loan conditions get satisfied. In some cases, the documents are also not drawn until the conditions get satisfied, also called “prior to the doc.” However, most of the lenders will ask for loan conditions to be completed before funding.
Varying Loan Conditions
Sometimes, an appraisal review or a receipt of all bank accounts may be requested as part of the loan conditions. There could be a clause about the installment of appliances and in working order prior to closure. You can never really know what loan conditions may be needed.
For example, an FHA loan condition stipulates that the paint chips around the house must be physically picked by a worker.
When the lender reviews the documents executed for the loan, he will get the fund ready. This translates to having the money wired to a title or escrow company. On receiving the wire transaction, the closing agent can record your file.
Sounds easy enough, except closing agents have specific times during the day when they can record a file. Some may have only one time a day, others multiple times per day.
This is important because if the fund wire comes in too late at a place with a single recording time, the transaction doesn’t close until the next day.
Getting your funds is the key to closing the sale of a home. It also adds to your interest. You can try to expedite the process of closing by asking when the loan funds will arrive and if same day closing is possible.
Caution About Fees
Various fees and charges get levied during the mortgage process. Closing costs will include these fees. These are fees for doing a title check, appraising your property, processing your loan, and any other service offered.
On the day of closing, you will have to bring in a check covering all those closing costs.
If you want to know what your estimate will be, multiply your loan amount by 3%. If you’re buying a home in a very expensive zip code, multiply that by 5%.
After applying for your mortgage loan, you will get a rough estimate of closing costs. But don’t get shocked if it ends up being much higher than the initial estimate.
If your lender estimates a 10,000$ closing cost, then you should be ready with a check for 11,000$. Talk to your lender, and find out what you need, whether that’s cash reserves or other financial details. He can help you understand the details of the funding applicable to you.
While TRID and the entire funding process seems simple enough, a mortgage professional can help you navigate through all the procedures and paperwork.
So what does funding mean for you as a buyer or seller? If you still don’t have an answer or still have doubts about funding, loans, and refinancing, you can find more information here.