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Pros and Cons of Traditional Versus E-closing

Pros and Cons of Traditional Versus E-closing

You may have heard some buzz about e-closing these days, and if you’re planning to buy or sell a property, you may be wondering how e-closing differs from traditional closing and what the benefits and drawbacks could be. Let’s take a closer look.

 

What is e-closing?

An e-closing enables a mortgage loan closing to happen electronically, versus in-person as is done with a traditional closing. An e-closing can also be a hybrid of the two, allowing for some documents to be printed and signed by hand while others can be signed electronically.

According to www.fanniemae.com, and their eClosings Fact Sheet, e-closing offers many benefits:

  • A streamlined closing experience
  • Shorter waits for funding
  • Reduced manually-completed errors, improved data validation and quality
  • Potentially lower costs to involved organizations, eliminating costs for copying, mailing and storing documents
  • Faster turnaround times in warehouse inventory and secondary market liquidity

 

In addition, an e-closing provides efficiency and convenience in many ways, particularly for real estate clients in multiple locations. While just a few years ago it might have seemed impossible, today with the added flexibility of e-closing, you can purchase a property even when you and the seller are on different sides of the globe.

Keep in mind that e-closings are legal in only a few states, and Minnesota and Wisconsin are not yet among them. Even if e-closing is not available, there are still several steps in the mortgage origination, approval and underwriting process that can happen electronically.

Additionally, e-closing primarily refers to buyers and the mortgage loan documentation process. For sellers, pre-signing and not attending the closing in person has become a popular trend in some local markets. Check with your real estate agent and/or title/settlement agent to see if this is an option for you.

 

Potential drawbacks and barriers to e-closing

Consumers surveyed reported that the primary issues they had in closing on a home loan related to the overwhelming process, the mountains of paperwork and the difficulty in knowing who could answer questions, according to www.consumerfinance.gov, “eClosing and buying a home: Technology’s role in closing on a mortgage.” The same story also lists the obstacles to e-closing technology use, which are keeping it from becoming universally available and standardized.

  • Differing laws and requirements in different regions and states, including different standards for government sponsored enterprises.
  • Legal concerns about the defensibility of e-signatures
  • The difficulty of coordinating among all parties
  • The organizational expense and time required to accommodate e-closings

One additional barrier to e-closings is that all parties have to be on board for an e-closing to be possible, and that includes lenders. For these reasons, it’s perhaps no surprise that the biggest hurdle to getting e-closing capability wherever you are in the world is adoption, according to www.realtormag.com, “Finally, e-Closings More Than a Pipe Dream.”

 

eClosing vs. traditional closing

Whether the e-closing solution seems like a fit for you or the traditional in-person closing is the way you want to go, it’s clear that e-closing is gaining a foothold in the industry, and organizations as well as consumers have a vested interest in the use, or lack thereof, of that technology.

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