What Is a Mortgage eClosing and How Does It Work?
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Mortgage eClosings give homebuyers, sellers and the other parties involved in a mortgage transaction a way to bypass the logistics of a traditional closing.
If you need to save time due to scheduling constraints and want to reduce paperwork, asking for an eClosing might be worthwhile — if your lender and state offer the option.
What is a mortgage eClosing?
An electronic mortgage closing, called an eClosing for short, refers to electronically signing some or all real estate closing documents by using a secure online portal, according to Fannie Mae, one of the two major federal agencies that buy and sell mortgages.
This digital process is meant to streamline the mortgage closing experience for everyone involved by processing paperwork and signatures electronically. Electronic documents typically cost less to administer and manage, and they eliminate the need to pay copying, shipping and storage fees.
Companies touting eClosing platforms include DocMagic, DocuSign and Pavaso.
3 types of mortgage eClosings
The term “digital mortgage closing” is used loosely in the mortgage industry, said Kevin Leurig, vice president of notary operations at eNotaryLog and former closing team manager for Redfin Mortgage.
Homebuyers and sellers may experience one of three different versions of the eClosing process:
- Remote online notarization, which allows all parties in a real estate transaction to participate via video conferencing software. Closing documents are reviewed and signed electronically, eliminating the need to bend schedules in an attempt to meet in person.
- Hybrid eClosing, which is an in-person meeting where some documents are signed electronically while others require a wet signature.
- In-person electronic notarization, which is also known as IPEN for short. IPEN is an in-person meeting where all documents are signed electronically, often through the use of a tablet.
What happens at a traditional closing?
A mortgage closing generally comes at the end of a one- to two-month sprint. Once you reach this point as a homebuyer, you’ve received final approval 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.
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 have historically taken place 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.
Traditional closing vs. eClosing
Some people may think that a mortgage eClosing completely overhauls the traditional closing experience, but that’s not the case, Leurig said. Depending on which version of eClosing is available to you, the process may take you away from the physical closing table and allow you to complete the transaction using your laptop or smartphone. At the very least, you won’t have to worry about providing wet signatures for some or all of your closing documents.
“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.
For the remote online notarization process, borrowers typically use software like DocuSign for their signatures and a video conferencing service like FaceTime or Zoom to interact with the other parties participating in the closing, such as the notary signing agent.
Although you’re not sitting in an office for a remote online notarization, the notary is present during the closing to walk you through the documents you’re signing — both those that must be notarized and those that don’t, Leurig said.
Pros and cons of a mortgage eClosing
|Provides more scheduling flexibility for the mortgage closing process
Reduces costs and time spent on closing paperwork
Requires a computer or mobile device and internet access
|Introduces potential pressure for borrowers to rush through the process and fail to review their closing docs before signing
Excludes many homebuyers and sellers across the country, as remote online notarization isn’t offered in every state
Creates technology barriers for some buyers and sellers who may have limited or no internet access