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Dry Closing is a term used when all of the closing requirements for a home are filled except for the distribution of funds. In a dry closing, all of the parties involved agree that the closing can still happen and the funds will be transferred as soon as possible after the closing.

Usually, dry closings occur when there has been a delay in the loan proceedings for one side of the deal or another. However, usually funds have at least been approved, so the seller knows they will get the funds. For obvious reasons, buyers and sellers prefer normal or “wet” closings, because buyers want to get into their new homes and sellers want their money. Buyers do not legally own their new property until their mortgage funds, and sellers have not legally sold their property until funding occurs. Therefore, there are major downsides to both buying and selling under a dry closing agreement.

Occasionally, dry closings occur because lenders prefer to review closing documents before releasing loan funds. This strategy ensures that the closing agent will correct any documentation problems before the mortgage is funded. In fact, there are some states that function exclusively by this method, so closings in those states are not “true” closings at all. Both parties simply meet to sign all the documents, and then before the deal is made the lenders review all the necessary paperwork. The theory behind this is that dry closings assure lenders, buyers, and sellers that a home purchase is legal and complete before any funds are exchanged.