Should You Participate in an eClosing?
Digital documents have made our day-to-day lives so much more convenient, from paperless utility bills to the electronic pay stubs that come with our direct-deposited paychecks.
They’ve made applying for a mortgage much easier, too. If you’ve gone through mortgage approval over the past few years, there’s a pretty good chance you were able to submit all types of documents to your lender without stepping foot in their office.
But what about actually closing that mortgage? Even today, most people make the trek into an office to sign dozens of papers before getting the keys to their new home. If given the opportunity, would you forego taking time off work, disrupting your weekday routine and fighting traffic to close on your home electronically?
Below we explore the process of a digital mortgage closing, also called an eClosing.
We’ll cover:
What does a traditional closing look like?
A mortgage closing generally comes at the end of a month-long sprint. At this point, you’ve been approved for a loan, and the property you want to buy has been appraised and inspected. Your lender will send you a closing disclosure outlining the final terms of your mortgage and the cash you’ll need to close the transaction.
Finally, you head to the closing table on your scheduled date to sign your paperwork, make your down payment and get your new house keys.
A traditional mortgage closing often happens at the settlement agent’s office, which could be an attorney or title company. Besides the homebuyer and seller, the other parties involved might also include:
- Buyer’s real estate agent
- Seller’s real estate agent
- Escrow officer
- Mortgage lender
During the closing, you’re presented with a stack of documents to acknowledge and sign, which all lead to the transfer of the home’s ownership from the seller to you.
The documents you’ll need to sign often include the following, plus many more:
- Closing Disclosure
- Deed of trust or security instrument
- Loan application
- Promissory note
Mortgage closings traditionally happen in person for a few reasons, including identity and signature verification, said Pava Leyrer, chief operating officer at Northern Mortgage Services in Grandville, Mich.
Another reason is so that documents can be notarized. A notary signing agent verifies the borrower’s info and serves as a witness while the closing documents are being signed.
Digital mortgage closings explained
A digital mortgage closing, also known as an eClosing, refers to electronically signing some or all mortgage loan closing documents using a secure online portal, according to government-sponsored enterprise Fannie Mae.
A digital closing is meant to streamline the mortgage closing process for everyone involved by handling paperwork and signatures electronically.
But at this point in its development, the term “digital mortgage closing” is used loosely in the mortgage industry, said Kevin Leurig, a senior closer with Redfin Mortgage, which offers a remote online notarization experience that allows the entire closing process to take place digitally.
His company completed its first fully digital mortgage closing in November 2018 for a Texas-based homebuyer through its partnership with digital closing platform Notarize. The platform allows all parties participating in a mortgage closing to review and sign closing documents electronically, eliminating the need to bend schedules in an attempt to meet in person.
The benefits are fairly clear. “No longer do customers have to leave work, find a babysitter, coordinate schedules or travel to ‘The Closing’,” Pat Kinsel, founder and CEO of Notarize, said in a statement.
Leurig of Redfin Mortgage said the digital mortgage closing option also works as a way to save time and money for real estate investors as well as buyers who aren’t in the same location as the property.
Electronic documents typically cost less to administer and manage, and they eliminate the need to pay copying, shipping and storage fees.
However, sometimes an eClosing is a hybrid process involving both electronic and paper documents. Some paperwork is delivered and signed digitally while the hard copies of other, more important documents — such as the promissory note and security instrument — are printed out and wet-signed.
Aside from Notarize, some other companies touting digital mortgage closings include E-Closing, Fidelity National Financial and Pavaso.
Traditional vs. digital closing
Some people may think that a mortgage eClosing completely overhauls the traditional closing experience, but that’s not the case, Leurig said. The digital process takes you away from the physical closing table and allows you to complete the transaction using your laptop or smartphone.
“You’re really signing the same documents — your note, your deed of trust, all of your riders,” he said. “All of the docs you’d sign in a wet transaction, you’re signing now just a digital copy of those.”
On top of that, you still need to verify your identity just like you would in a traditional closing.
Borrowers typically use software like DocuSign for their signatures and a video conferencing service like FaceTime to interact with the other parties participating in the closing, such as the notary signing agent.
Although you’re not sitting in an office, the notary is present during the eClosing to walk you through the documents you’re signing — both those that must be notarized and those that don’t, Leurig said.
eClosing Pros and Cons
While it certainly sounds convenient, be sure you first consider the benefits and drawbacks of a digital mortgage closing.
Pros
An eClosing allows for mortgage borrowers to take more control of when and where they close on their home.
It doesn’t require a ton of technology. just your computer or smartphone and internet access.
Cons
Borrowers could take less time reviewing their closing documents before signing. This could lead to a lack of understanding of the terms of their mortgage transaction.
The technology barrier. If their access to internet is already limited or only available through smartphones, this could present challenges later if they need to review their paperwork after closing.
Cybersecurity risks.
Digital closings still aren’t legal in every state. And the laws governing them can get complicated. The National Notary Association reported in late February 2019 that just five states allow the use of remote online notarization, and another 19 states have introduced legislation, some of which will go into effect in the coming months. According to the association, the five states that have operational eClosings are:
- Minnesota
- Montana
- Nevada
- Texas
- Virginia
However, some companies are offering eClosings in other states, as well. Redfin Mortgage said their borrowers can participate in an eClosing if they are using the brokerage’s title and settlement company, Title Forward, and also purchasing a home in:
- Illinois
- Maryland
- Minnesota
- Pennsylvania
- Tennessee
- Texas
- Virginia
- Washington, D.C.
For non-Redfin borrowers, the best way to determine whether you can take advantage of a digital mortgage closing is to check with your lender.
The bottom line
Digital mortgage closings offer a way for homebuyers, home sellers, real estate agents, settlement agents and other parties involved in a mortgage transaction to bypass the logistics of a traditional closing.
While the practice of remote online notarization is still limited due to local laws, many states are taking strides toward making it a reality for homebuyers. The National Notary Association has a policy tracker to help consumers stay up-to-date on what’s happening in their state.
If you foresee any scheduling issues that can make it difficult for you to travel to an office to close on your home loan, it might be worthwhile for you to participate in an eClosing — just be sure your mortgage lender and state offer this option.
