“You Have All The Documents, Now Fund The Loan!” Closing Process Misconceptions

When Hiccups Happen At Closing

We had a particularly tough transaction in July when a final records check found a foreclosure (not on the credit report) that had only been seasoned for 6.5 years instead of the required 7 years.

This made Fannie Mae/Conforming financing impossible, and it forced us to restructure the loan – which delayed the transaction.

We had to use a non-QM lender that was particularly demanding and a bit slow.

When the buyers sent in the final “conditions” necessary to draw loan documents, the justifiably frustrated selling agent said:  “Jay, you have all the documents, now fund the loan!” (as in “fund it the next day”). 

Steps Necessary Before A Lender Can Fund

Agents are understandably frustrated when their transaction experiences delays, so I thought I would just review a few of the closing process steps that have to take place with every loan before we can actually fund and record (for purchases; refi’s have additional delays).

1. Final Condition Review/Sign Off.   If the conditions (info or docs necessary before loan documents can be drawn) are serious, the underwriter has to review and “sign off” on them.  This alone can take 1 to 2 days (or more), depending on how backed up the underwriters are and how complicated or nuanced the condition documentation is.
2. Drawing Loan Documents.  We request loan documents as soon as all of our “prior to document” conditions are signed off.  The time from request to getting the documents ranges from several hours to a day or two – again depending on how backed up the document department is, and how many details must be confirmed for the loan documents (seller credits, agent terms, etc. must all be verified).
3. Closing Disclosure.  This is the disclosure form that has to go out prior to every closing. For straightforward deals, we can send them out at any time as long as the loan is approved, the appraisal is in, and we have all of the final fees (from escrow, insurance agent, appraiser, agents, etc.).  But if deals are especially tough or fluid, we don’t send the CD until we have all conditions cleared b/c we need to make sure we know the final terms.
4. Closing Disclosure “Inspection period.” Once a closing disclosure goes out, there is a three-day “inspection period” from the day of signing, e.g. if the borrower signs the CD on a Monday, she can’t sign loan documents until Thursday. This period is mandated by the federal government to give the borrower time to review and understand the loan terms before signing.
5. Actual Signing of Loan Documents.  Once loan documents are drawn, they go to escrow where the full signing package is prepared, with ALL of the necessary loan and legal documents, and a signing appointment is set up.  This is a much more complex process than meets the eye and can easily take a day or more as well.
6. Funding Package Review. This varies from state to state and lender to lender, depending on processes and laws (whether a state or lender is a “wet funder” – funds ready at signing – or a “dry funder” – funds ready after signing).  But, in most dry funding states, the full funding package (entire file with all signed documents) has to be formally reviewed prior to funding, and this can take a day or more too.  In wet funding states, the file has to be ready to fund prior to loan documents getting drawn (creating delays on that end) and after signing, the funder just makes sure all the key documents are signed and in order.

The above steps are overly simplified and there is actually far more that has to take place behind the scenes.

But, the main point is that there is always at least a two to six-day gap between the time the final conditions come in and the day we can actually fund a loan.