Wet Loan What it is How it Works Special Considerations
Wet Loan: What it is, How it Works, Special Considerations
What Is a Wet Loan?
A wet loan is a mortgage where funds are realized at the time of loan application. Other required documentation, such as surveys and title searches, is submitted after the dispersion of funds.
Wet loans allow borrowers to purchase property rapidly and complete necessary documentation afterwards. Conditions for wet loans vary based on state laws and not all states allow them.
Understanding a Wet Loan
In a wet-funded mortgage, the borrower receives money at the time their loan is approved. The borrower can then purchase property and complete the required documentation for property transfer. After funds are transferred, the bank reviews the loan documentation. Wet loans expedite the purchasing process by allowing the sale to occur before paperwork is completed.
Wet Loans vs. Dry Loans
With wet-loan transactions, speed increases the risk of fraud and loan default. The risk comes from the seller receiving funds before the loan documentation is reviewed and approved. In contrast, a dry loan is where funds are released after completion and review of all necessary sale and loan documentation. Dry funding provides consumer protection and ensures the legality of the transaction.
Wet Closings vs. Dry Closings
Wet loans may go through either a traditional closing or a dry closing. A real estate closing involves the completion of a transaction and the transfer of property. A dry closing occurs when there is a delay in loan funding and the buyer and seller are geographically separated. In a dry closing, documents are signed, but no money changes hands.
Special Considerations for a Wet Loan
Wet loans are permitted in all states except Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon, and Washington. Wet-settlement laws require lending banks to disburse funds within a certain period to curb funding delays after closing documents are signed. All before-funding conditions must be met for lenders to allow closing in wet states.
