Key Takeaways
- Funds disbursed immediately after signing loan documents.
- Entire loan process completed on closing day.
- Wet funding states require same-day fund distribution.
- Provides certainty and speed in mortgage closings.
What is Wet Loan?
A wet loan is a mortgage financing arrangement where funds are disbursed immediately after all parties sign the loan documents at closing, with the entire process—signing, funding, recording, and disbursement—occurring on the same day. This type of loan ensures that money is available "while the ink is still wet," providing certainty to both buyer and seller.
Wet loans contrast with other funding methods that delay disbursement until after document review, making them popular in states with stringent wet settlement laws.
Key Characteristics
Wet loans have distinct features that affect the closing process:
- Immediate funding: Lenders must have funds ready at signing, ensuring quick transfer to escrow or title companies.
- Same-day closing: Signing, funding, and recording all occur on the same day, speeding up ownership transfer.
- State-dependent: Primarily required in wet funding states east of the Rockies, where laws mandate quick disbursement.
- Risk factors: Lenders assume more risk since funds are released before final document review.
- Limited flexibility: Major loan conditions must be satisfied before documents are drawn, preventing last-minute contract changes.
How It Works
In a wet loan, the lender orders the funding wire a day or two in advance, ensuring money is in escrow before the borrower signs documents. Once signing occurs, funds are immediately transferred, and ownership records are updated the same day.
This process requires all loan conditions to be pre-approved and the signing and funding dates fixed to prevent delays. Unlike dry funding states, where disbursement happens after document review, wet funding offers speed and certainty, making it attractive for time-sensitive transactions.
Examples and Use Cases
Wet loans are commonly used in real estate transactions requiring quick closings and immediate possession transfer. For example:
- Airlines: Companies like Delta may use wet funding for rapid property acquisitions during expansion phases.
- Mortgage markets: States with wet funding laws require lenders to follow strict timelines to ensure consumer protection.
- Credit considerations: Buyers often research options like those in our best low interest credit cards guide to manage financing costs alongside mortgage loans efficiently.
Important Considerations
While wet loans provide speed and certainty, you should be aware of potential risks such as releasing funds before full document verification. Lenders often limit wet funding to trusted scenarios to minimize these risks.
For borrowers, understanding the difference between wet and dry funding states helps set expectations for closing timelines. Additionally, exploring tools such as best online brokers can assist in managing overall financial planning around property investments.
Final Words
Wet loans ensure immediate fund disbursement at closing, reducing delays and streamlining ownership transfer. If you're buying in a wet funding state, confirm your lender’s ability to meet these timing requirements to avoid last-minute issues.
Frequently Asked Questions
A wet loan is a mortgage financing arrangement where funds are disbursed immediately after all parties sign the loan documents at closing, with signing, funding, recording, and disbursement all happening on the same day.
In wet funding, the lender must have funds ready at the time of signing, and once borrowers sign their documents, the lender immediately transfers money to the escrow or title company. This ensures ownership is transferred and funds are available on the same day.
Wet funding states, mostly located east of the Rocky Mountains like Virginia, mandate that all mortgage funds be disbursed at closing along with signed documents and escrow conditions, often requiring immediate or same-day funding.
Wet funding states require immediate disbursement of funds at closing, while dry funding states, such as California, review signed documents after closing before sending funds, which usually causes a 1-2 day delay in disbursement.
Wet loans provide certainty that the transaction will close once documents are signed, speed up the closing process by completing everything in one day, and offer consumer protection through laws that prevent funding delays.
While wet funding streamlines closings, it carries some risk because funds are disbursed immediately, so lenders must carefully ensure all conditions are met beforehand to avoid potential issues after the transaction is completed.
Wet funding wires are typically ordered a day or two before closing and are already sitting in the escrow account on the day documents are signed to ensure funds are available immediately and recording deadlines are met.
