What is a whole loan sale, and how does it work in private lending?

A whole loan sale is when a lender sells 100% of a loan, the note and the lien that secures it, to a single buyer. The buyer becomes the owner of the loan and receives the borrower's payments from then on. The originating lender frees up its capital and can lend it again.

In private real estate lending, whole loan sales are one of the cleanest ways to fund more loans than your own balance sheet allows. This guide explains how they work, how they compare with the alternatives, and what buyers look for.

How a whole loan sale works

At its simplest, there are three parties:

• The originating lender, who finds the borrower, underwrites the deal and closes the loan.
• The borrower, a real estate investor or developer borrowing for a business purpose.
• The buyer (often called a capital partner, note buyer or investor), who purchases the entire loan.

The sale can happen at two different moments.

1. Sale at or before closing (table funding)

The buyer commits before the loan closes and funds it at closing. The loan is originated in the lender's name, but the buyer's money is what goes to the borrower. The lender never has to carry the loan on its own balance sheet, even for a day.

2. Sale after closing (seasoned or post-closing sale)

The lender closes the loan with its own capital or a credit line, then sells it later, sometimes days, sometimes months after closing. The lender carries the loan until the sale and takes the risk that the sale doesn't happen on the expected terms.

In both cases, the legal transfer usually involves an assignment of the mortgage or deed of trust, an endorsement or allonge transferring the promissory note, and a loan sale or purchase agreement setting out what the seller represents about the loan. Your attorney will structure the documents for your state and your loan program.

What the lender gives up, and what it keeps

When you sell a whole loan, you sell the loan's future interest income. What you keep depends on how the deal is structured:

• Origination economics. Lenders typically keep some or all of the points and fees charged at closing.
• Servicing. Some sales are "servicing released" (the buyer or its servicer takes over). Others are "servicing retained," where the lender keeps servicing the loan for a fee.
• The borrower relationship. Even when the loan is sold, the borrower usually knows the originating lender. A good sale structure lets the lender keep that relationship for the borrower's next project.

Whole loan sales vs. the alternatives

	Whole loan sale	Participation	Credit line	Raising individual investors
Who owns the loan	One buyer, 100%	Several owners	You (pledged to lender)	You, or a structure you set up
Your capital at risk after sale	None in that loan	Your retained share	Yes	Varies
Decisions on extensions or defaults	The buyer (with servicer)	Shared, by agreement	You	You
Speed to scale	Fast once buyers are in place	Medium	Medium	Slow
Complexity per loan	Low	High	Medium	Medium to high

The big advantage of a whole loan sale is simplicity: one loan, one owner, one set of decisions. Participations split ownership among several holders, which complicates extensions, modifications and defaults. Credit lines leave the risk with you and come with covenants and advance rates. Raising money from individuals is slow and, depending on structure, can bring securities rules into play.

What buyers look for

Capital partners buying whole loans want to understand exactly what they're buying. Expect them to ask for:

1. Lien position. Almost always first lien.
2. Leverage. Loan-to-value (or loan-to-cost for construction) supported by a third-party appraisal.
3. The borrower. Experience with similar projects, credit and background, and their equity in the deal.
4. The exit. A believable plan to repay: a sale, a refinance, or both.
5. The file. Appraisal, title commitment, term sheet, insurance and, for construction, budget and draw schedule.
6. The originator. Your track record and how you underwrite.

We wrote a separate checklist on what goes into a complete private loan file. Complete files are the single biggest factor in how quickly a buyer can say yes.

A worked example

Hypothetical figures, for illustration only.

A lender has a borrower who needs a $600,000 bridge loan on a property appraised at $900,000, a loan-to-value of about 67%. The lender's own capital is fully deployed.

• Without a buyer: the lender passes on the loan or scrambles to raise money from individuals before the closing date.
• With a whole loan buyer lined up: the lender sends the complete file, a capital partner whose criteria fit reviews it and commits, and the loan closes in the lender's name with the buyer's capital. The lender keeps its agreed share of the origination points, the borrower gets their closing, and the lender's own capital stays free for the loans it wants to keep.

Common questions

Does the borrower have to agree to the sale? Business-purpose loan documents commonly allow the lender to sell or assign the loan. Your loan documents and counsel determine what notice, if any, is required.

Is a whole loan sale the same as selling a "note"? In everyday usage, yes: buyers often call it buying notes. Technically, the buyer acquires both the promissory note and the security instrument (mortgage or deed of trust).

Can I sell only some of my loans? Yes. Many lenders keep the loans they like on their own books and sell the ones that exceed their capacity or concentration limits.

Key takeaways

• A whole loan sale transfers 100% of a loan to one buyer, freeing the originator's capital.
• Selling at closing (table funding) means you never carry the loan; selling after closing means you carry it until the sale.
• Compared with participations, credit lines and individual investors, whole loan sales are the simplest way to scale.
• Buyers fund fastest when the loan is first lien, sensibly leveraged and comes with a complete file.

How Lender Capital fits

Lender Capital is built around whole loan placement. You submit a first-lien, business-purpose loan with the full file. We review it and send it only to the capital partners whose criteria it fits. One partner funds the whole loan at closing, and you keep the borrower relationship. You pay a placement fee out of the origination points, and only when the loan funds.

See how it works for lenders, or apply as a lender.