Wet funding

How wet funding works

On a wet-funded draw, the lender requests an advance for a loan that is about to close. The provider wires its share to the settlement agent, the loan closes, and the original note and collateral documents follow to the provider or its custodian within a set number of days. Until they arrive, the provider is lending against a loan it has not yet seen in final form, so wet advances usually come with tighter rules: a sublimit on wet loans outstanding, a short deadline to deliver documents and penalties or a pay-down if documents are late.

Wet vs. dry funding

The alternative is dry funding, where the lender closes with its own money and the provider advances only after receiving the documents. Wet funding lets the line pay for the closing itself; dry funding means the lender needs enough cash to close each loan and wait.

Why it matters to a private lender

Wet funding is what makes a line useful for lenders without deep cash reserves. Ask whether the provider offers it for your loan types, how large the wet sublimit is and how fast you must deliver collateral. Some states also have good-funds or wet-settlement rules on when closing funds must be available; ask your settlement agent and counsel.

Example

Hypothetical. A lender closes a $400,000 loan on a line with a 75% advance. With wet funding, the provider wires $300,000 to escrow on closing day and the lender wires $100,000. With dry funding, the lender wires all $400,000 and receives $300,000 days later.

Table funding works similarly at the table but with the whole loan funded; see table funding.