eClosings: What They Are And How They Work
While the pen-to-paper mortgage closing process has remained largely unchanged, the rest of the home buying process – including house hunting and mortgage applications – takes place primarily online these days.
It should therefore come as little surprise that the closing process is beginning to go virtual as well. Electronic mortgage closings have become more common and accessible to both borrowers and lenders in recent years.
Electronic mortgage closings – more commonly known as eClosings – are meant to streamline the closing process and cut out additional fees like copying and shipping. Because eClosings are commonly performed using electronic tablets, they replace paper documents with electronic documents, saving a tree or two in the process.
If that all sounds appealing, read on to learn the ins and outs of eClosings.
What Is An eClosing?
An eClosing is a mortgage closing where some or all of the closing process is conducted digitally. More specifically, eClosings utilize a secure online portal to allow borrowers and lenders to electronically sign closing documents for real estate transactions.
Digital signatures can come in many forms. Examples of acceptable electronic signatures include:
- Typing your name into the space for your signature
- Uploading a snapshot of your signature to the document
- Tracing a finger or a stylus along the signature line
For a remote signing process, borrowers may use software like DocuSign. Video conferencing programs can be used to communicate with the other parties involved in the transaction and confirm the borrower’s identity and background.
Types Of eClosings
eClosing is a generally loose term that can refer to one of three main types of digital mortgage closings. The three types are:
- Hybrid eClosing: The most common type of eClosing. As its name suggests, a hybrid eClosing involves a combination of electronic and “wet-ink” signatures. It requires an in-person meeting between the borrowers and the notary public.
- In-Person Electronic Notarization (IPEN): This eClosing also requires a face-to-face meeting, though all closing documents are signed electronically with a tablet or computer.
- Remote Online Notarization (RON): The most convenient eClosing process allows all parties to meet virtually via a web video conference. All documents are eSigned and eNotarized. Although full eClosings are offered in some states when refinancing, Rocket Mortgage® doesn't currently offer RON on home purchases.
Different states allow for different eClosing types. Rocket Mortgage can perform hybrid eClosings in all 50 states if you’re refinancing to a conventional fixed-rate mortgage for your single-family home.
How Does An Electronic Mortgage Closing Work?
The eClosing process is actually very similar to the traditional mortgage closing process. The same documents are signed, whether by hand or electronically, and the same parties are usually involved. The biggest difference depends on what type of eClosing is available to you – hybrid, IPEN or RON.
A hybrid eClosing still requires some face-to-face time with mortgage lenders to provide a wet signature – meaning ink to paper – on some of the more important documents.
Some of these closing documents include:
Documents such as the Closing Disclosure and escrow disclosure are usually available to sign electronically. An eNote – or electronic promissory note – may also be available for you to digitally sign. It is important to note that even a single electronic signature categorizes the whole process as an eClosing.
In the case of a RON closing process, the borrower is walked through the documents by the notary over video. The notary will also remotely perform other notarial acts – such as confirming the borrower’s identity and other personal information – during this meeting.
Pros And Cons of Mortgage eClosings
As with many processes throughout the years, it’s entirely possible that the benefits of eClosings could make these online closings the the future standard. That is not to say that virtual mortgage closings don’t have their drawbacks.
See below the pros and cons of an eClosing.
Pros of eClosing
Some of the ways an eClosing benefits borrowers and lenders include the following:
- Allows more flexible scheduling to conduct the closing process
- Cuts down on time and money spent on closing paperwork
- Detects missed signatures and other mistakes immediately, sparing everyone involved a headache later on
A 2015 study by the Consumer Financial Protection Bureau also found that most borrowers completed their closing with a better understanding of the mortgage process when using eClosing. The study also noted that consumers felt that eClosings allowed them to play a far more active role in the transaction.
Cons of eClosing
While an eClosing can be convenient, some of its possible drawbacks include the following:
- Transactions require access to a tablet or computer, as well as reliable internet access.
- They can create a technology barrier for buyers and sellers who aren’t as technologically savvy as others.
- Some eClosing types – particularly RONs – are only available in certain states.
Best Practices For A Remote House Closing During COVID-19
In states that allow it, a RON eClosing is possibly the safest option for closing on a home while maintaining social distancing. For many, conducting such important business over video may seem strange, off-putting and even a little unofficial.
Rest assured that your eSignature is just as legitimate as your handwritten one. To ease into this different process, consider the following best practices:
- Check your closing options. Ask your loan officer what eClosing options are available in your home state. To date, Rocket Mortgage has completed remote closings in states such as Michigan1 and North Carolina.2
- Confirm your meeting type. Make sure you have the ability to participate in a video conference.
- Verify your Wi-Fi. Ensure you have a stable internet connection.
- Listen closely. During the eClosing call, pay close attention to all lender and notary instructions and sign in the correct spaces.
- Pay electronically. Cover your closing costs electronically with a bank-to-bank or wire transfer.
- Set up the key transfer. Finally, obtain the keys to your new home from the seller via the mail or another delivery service.
When done right, a remote eClosing will allow you to close on your new home from the comfort of your old one.
The Bottom Line
eClosings have been around for years now, but you might see them become more prominent under our new socially distant lifestyles. Home buyers may just find the digital process more convenient. Lenders, too, can appreciate the cost-cutting and time-saving benefits.
While availability differs between the three types of eClosings, it’s worth talking to your mortgage broker or lender about your closing options.
Looking for a convenient and seamless mortgage or refinance experience? Apply for a mortgage today.
1 Rocket Mortgage® and Nexsys Technologies Perform Michigan’s First Remote Online Mortgage Closing. Quickenloans.com. December 18, 2019.
2 Rocket Mortgage® and Amrock Team Up for North Carolina’s First Remote Online Mortgage Closing. Quickenloans.com. July 17, 2020.