Warehouse line of credit for private lenders: requirements, costs

A warehouse line of credit for private lenders is a revolving credit facility, usually from a bank or a credit fund, that lends against the loans you originate: you close a loan, draw a share of it from the line, pledge the loan as collateral, and repay the draw when the loan pays off or is sold. It can multiply how many loans your own capital supports, but the provider will want a strong balance sheet, a track record and audited financials, and the risk of every loan stays with you.

This guide covers how a warehouse line works step by step, who provides them, typical requirements, what it costs at a high level, and when it is not the right tool. If you are weighing a line against other ways to fund loans, see our warehouse line of credit alternative page, and for the basic concepts and vocabulary, start with what warehouse lending is.

Key takeaways

• A warehouse line funds part of each loan; you fund the rest (the haircut) and keep the loan, its yield and its risk.
• Providers underwrite you as much as your loans: net worth and liquidity covenants, track record, audited financials and usually a personal guarantee.
• The terms that matter most are the advance rate, eligibility criteria, aging (dwell time) limits, concentration limits, recourse and margin calls.
• Costs go beyond the interest rate: fees for unused capacity, setup, legal, custody and reporting all add up.
• A line suits established lenders who want to hold loans. Lenders with thin balance sheets, varied loan types or no wish to carry loan risk often fit direct capital placement better.

How does a warehouse line of credit work?

A warehouse line, or warehouse credit facility, works as a revolving loan to you, secured by the loans you make. Step by step:

1. The facility is set up. The provider underwrites your business and you sign a credit agreement (or, in many mortgage facilities, a master repurchase agreement) that sets the facility size, advance rate, eligibility rules and covenants.
2. You approve a loan that fits the facility's eligibility criteria. Loans outside the box can't go on the line.
3. At closing, you draw on the line for the advance rate times the loan amount (or its value, if lower), and fund the difference with your own cash.
4. The loan documents are delivered to the provider or its custodian, and the loan becomes collateral.
5. You pay interest on the drawn balance and report regularly on the pledged loans.
6. The draw is repaid when the borrower pays off, when you sell the loan, or when the loan breaches a limit (it ages out, goes delinquent or becomes ineligible) and you have to pay it down or swap in other collateral.
7. Capacity frees up and you draw again for the next loan.

In residential mortgage banking, step 6 normally happens within weeks because the loan is sold to an investor. A Federal Reserve Finance and Economics Discussion Series paper on liquidity in the mortgage market describes that cycle: the originator funds a mortgage with a draw on the line, the loan is collateral until it is sold, and the sale proceeds go straight to the warehouse lender to pay down the draw. Private lenders who hold loans to maturity use the same mechanics on a much longer clock, which is where most of the friction comes from.

Who provides warehouse lines to private lenders?

Warehouse lenders, the institutions that make warehouse loans to originators, fall into two broad groups: banks (commercial and investment banks) and non-bank providers such as private credit funds. The Federal Reserve paper above notes that warehouse lines to mortgage companies have mostly come from commercial and investment banks, because the business needs scale, risk systems and capital markets access. A 2025 FEDS Note on bank lending to private credit found that most bank lending to private credit vehicles runs through revolving credit lines and that the authors expect bank exposure to private lenders, including through warehouse financing, to keep growing.

For a business-purpose real estate lender, the practical difference is appetite. Banks tend to want larger, established borrowers and tighter covenants. Credit funds may accept more varied collateral, typically at a higher price. Terms vary widely from one provider to the next.

Is there a warehouse line of credit for hard money lenders?

Yes, but the market is narrower. A warehouse line of credit for hard money lenders usually comes from a non-bank provider or a bank with a business-purpose program, because many bank programs exclude bridge, fix-and-flip and construction loans. Expect close review of each loan type, dwell limits that have to fit loans held for months, concentration limits and personal guarantees.

How to get a warehouse line of credit

To get a warehouse line of credit, build reviewed or audited financials, a loan-level track record and a written credit policy, then approach both banks and non-bank warehouse lenders. Compare term sheets, expect diligence and a field exam, have counsel review the credit agreement, and plan for owners to sign personal guarantees.

Our guide to warehouse line requirements for private lenders walks through each step and every test a provider applies, with the questions to ask on each call.

What are the typical requirements for a warehouse line?

Expect the provider to underwrite your company and your loans. Common requirements include:

• Net worth and tangible net worth covenants. A minimum equity level, often measured as tangible net worth (excluding intangibles).
• Liquidity covenants. Minimum unrestricted cash or liquid assets. The Federal Reserve paper lists covenants that often require minimum net worth and unrestricted cash, a cap on liabilities to net worth, and profitability in at least one of the two previous quarters.
• Track record. Years in business, loans originated and repaid, and loss history.
• Audited financials. Usually annual audited statements plus monthly or quarterly reporting.
• Advance rates and haircuts. The share of each loan the line funds, and the share you fund. In agency mortgage lending, the Fed paper says the warehouse lender typically funds around 95% of the mortgage balance. Business-purpose loans that are held longer and have no guaranteed buyer are underwritten differently, so don't assume that figure applies; terms vary by provider.
• Eligibility criteria. Rules on loan type, lien position, loan-to-value, loan size, property type, location and borrower.
• Dwell time and aging limits. How long a loan can stay on the line before it must come off. In mortgage banking, loans turn quickly: the OCC's Mortgage Banking booklet says a bank normally holds a loan in its warehouse for no more than 90 days. A bridge or construction loan that runs 12 to 24 months is a much longer hold.
• Concentration limits. Caps by borrower, market, property type or loan size.
• Recourse and personal guarantees. You owe the full amount drawn regardless of how the loans perform, and principals are often asked to guarantee it personally.
• Margin calls and mark-to-market. If a pledged loan loses value or eligibility, you may have to pay down the line or add collateral. The Fed paper notes that in mortgage repurchase facilities a margin call usually has to be met within 24 hours.
• Fees, covered below.

What does a warehouse line cost?

The cost of a warehouse line is the interest on what you draw plus a set of fees, and the drag of the cash you must keep in each loan. At a high level:

• Interest on the drawn balance, commonly a benchmark rate plus a margin.
• Upfront or commitment fees to open or renew the facility.
• Non-usage (unused line) fees on capacity you don't draw, and sometimes minimum utilization requirements.
• Legal, diligence and audit costs, often paid by you for both sides.
• Custody, collateral and reporting costs for holding documents and producing borrowing base reports.
• The haircut itself. The cash you keep in each loan earns the loan's rate, but it can't fund your next loan.

A hypothetical example: a $10 million line at an 80% advance rate funds $8 million of a $10 million book, so you need $2 million of your own cash to use it fully. You earn the spread between your loan rates and the line's rate, plus your points, but if a $500,000 loan defaults you still owe the provider the $400,000 drawn against it. All figures are illustrative.

What are the pros and cons of a warehouse line?

Pros

• You keep the loan, the interest income and full control.
• Capital turns faster than lending only from your own balance sheet.
• Once set up, funding an eligible loan is routine.

Cons

• Recourse. Losses are yours, and a personal guarantee can put your own assets at risk.
• Covenants. A bad quarter can put you in breach. The Fed paper notes that during stress, warehouse lenders may cut or cancel lines when covenants are violated.
• Renewal risk. Lines have terms, and the Fed paper found most mortgage warehouse lines at the time had maturities of less than a year.
• The box. Eligibility rules decide which loans you can fund, not your borrowers' needs.
• Cash demands. Margin calls, aged loans and delinquencies require fast cash at the worst time.

When is a warehouse line NOT the right tool?

A warehouse line is not the right tool when your balance sheet can't carry the covenants, your loans don't fit a provider's box, or you don't want the loan risk. Specifically:

• You can't meet net worth, liquidity or audit requirements yet. See what to do if you can't qualify for a warehouse line.
• Your loans are held for 12 months or more and would hit aging limits that are built for loans sold within weeks.
• Your production is lumpy or varied: different property types, markets or loan sizes that trip concentration limits.
• You'd rather not guarantee the debt personally or keep the risk of every loan you originate.
• Your volume doesn't justify the fixed costs of fees and legal work.

A warehouse line is usually the better fit when you are an established lender with a strong balance sheet, steady volume that fits standard criteria, and you want to keep the loans and their yield.

Warehouse line vs. direct capital placement

	Warehouse line of credit	Direct capital placement
Who owns the loan	You	The capital partner, by assignment at closing
Your cash in each loan	The haircut (loan minus advance)	None, the loan is funded in full at closing
Risk of loss	Yours, plus recourse to the line	The capital partner's after assignment, subject to the sale terms
Your income	Points plus all interest above the line's cost	Points (less a placement fee) plus a yield spread above the partner's agreed rate
Covenants and audits	Net worth, liquidity, audited financials	None on your balance sheet; lenders are reviewed before submitting
Personal guarantee	Common	No credit line to guarantee
Margin calls and aging limits	Yes	No
Fixed costs	Setup, legal, non-usage and custody fees	Placement fee only when a loan funds
Best for	Established lenders who want to hold loans	Lenders who can't get, have outgrown or don't want a line

Many lenders use both: a line for the loans they want to keep, and whole loan placement or sales for the rest. For a fuller comparison, see warehouse line vs. whole loan sale vs. participation, what a whole loan sale is, and all the ways private lenders fund more loans.

Frequently asked questions

What are the requirements for a warehouse line of credit?

Providers typically look for minimum net worth (often tangible net worth) and liquidity, a track record of originating and collecting loans, audited financial statements and, often, a personal guarantee. Exact thresholds vary by provider.

Can private lenders get a warehouse line?

Yes, established private and hard money lenders can get warehouse lines from banks and credit funds, provided their balance sheet, track record and loan types fit the provider's criteria. Smaller or newer lenders often find the covenants hard to meet.

What is a haircut on a warehouse line?

The haircut is the share of each loan the line won't fund, which you cover with your own cash. With a hypothetical 80% advance rate, the haircut is 20%.

Is a warehouse line recourse to the lender?

Typically yes. You owe the full amount drawn even if the pledged loans default, and principals are often asked to guarantee the line personally.

Is there a warehouse line of credit for hard money lenders?

Yes. Some non-bank providers and bank business-purpose programs finance bridge, fix-and-flip and construction loans, usually with strict eligibility rules, concentration limits and personal guarantees. Many bank programs built for residential mortgages exclude these loans, so ask each provider early which loan types it will finance.

How Lender Capital fits

Lender Capital is an alternative to a warehouse line for first-lien, business-purpose real estate loans. You submit a loan, one capital partner sees the full file and funds the whole loan at closing, and the loan is assigned to it at closing. You keep servicing and the borrower relationship, carry no covenants or margin calls, and pay a placement fee from your origination points only when a loan funds. Lenders are reviewed (track record, underwriting, licensing) before submitting. This is general information, not legal advice; consult counsel on licensing and structure. You keep your points and earn a yield spread: you set the borrower's note rate, the capital partner receives its agreed rate, and the difference is yours.

Compare the options on our warehouse line alternative page, or apply as a lender.

Sources

• Office of the Comptroller of the Currency, Comptroller's Handbook: Mortgage Banking
• Kim, Laufer, Pence, Stanton and Wallace, Liquidity Crises in the Mortgage Market, Federal Reserve Board, Finance and Economics Discussion Series 2018-016
• Berrospide, Cai, Lewis-Hayre and Zikes, Bank Lending to Private Credit: Size, Characteristics, and Financial Stability Implications, FEDS Notes, May 2025