Dry funding

How dry funding works

The lender closes the loan with its own cash, then sends the original note, the recorded or recording-ready security instrument and the rest of the collateral file to the provider or its custodian. Once the documents are checked against the eligibility criteria, the provider advances against the loan. Because the provider has the documents before it lends, dry funding carries less operational risk for it, and some providers offer better terms or accept loan types on a dry basis that they would not wet fund.

Dry vs. wet funding

In wet funding the provider’s money is at the closing table. In dry funding the lender’s money is, and the advance reimburses the lender later. The gap can be a few days or longer if documents are missing or need corrections.

Why it matters to a private lender

Dry funding means you need enough liquidity to close loans in full and wait for reimbursement, on top of the haircut that stays in each loan permanently. For a lender closing several loans a week, that bridge period can tie up as much cash as the haircuts themselves.

Example

Hypothetical. A lender closes three $500,000 loans in one week on a dry-funded line with a 75% advance. It wires $1,500,000 at closing and receives $1,125,000 once documents clear, so $1,500,000 of its cash is out for that period and $375,000 stays in the loans.

Compare that cash need with the warehouse line cost calculator.