What Is a Wet Loan?

What Is a Wet Loan?

Let me explain what a wet loan is directly: it's a type of mortgage where you get the funds right at or with the completion of your loan application. You submit other required documents for closing the property, like surveys and title searches, after the money has already been disbursed.

As a borrower, this means you can buy property more quickly and handle the paperwork afterward. Keep in mind, though, that rules for wet loans vary by state, and not every state allows them.

Key Takeaways

You should know that a wet loan provides mortgage funds before all documentation is done, so you can purchase property without waiting for the full paperwork. This setup lets you move faster on a deal. However, wet loans aren't an option everywhere—always check your state's laws before considering one.

Understanding a Wet Loan

In a wet-funded mortgage, you receive the money as soon as your loan is approved. You can then go ahead and buy the property, completing the other required documents to transfer the title officially. After the funds are out, the bank reviews the loan documentation. This approach speeds up the buying process by letting the sale happen before everything is finalized on paper.

Importantly, a wet loan lets you purchase property more rapidly, before wrapping up the necessary paperwork.

Wet Loans vs. Dry Loans

With wet loans, you get speed, but it comes with more risk. There's a higher chance of fraud or default because the seller gets the funds before the loan documents are reviewed and approved. If the bank later decides the loan is too risky, revoking it costs them significant time and money.

On the other hand, a dry loan releases funds only after all sale and loan documents are completed and reviewed. This adds protection for consumers and ensures the transaction is legal. The process is slower, with no funds at closing, giving time to fix any issues.

Dry loans originated in times before electronic banking, when distances between buyers, sellers, and lenders made transactions take longer. Funds are dispersed only when the mortgage is officially closed, and that's when you can take possession of the property.

Wet Closings vs. Dry Closings

Wet loans can involve either a traditional closing or a dry closing. A real estate closing finalizes the transaction for selling or exchanging property. In a conventional closing, all buyer and seller documents are completed, the title transfers to you, and all pending funds are settled.

A dry closing, however, is more for convenience when there's a delay in funding or when buyer and seller are far apart. It's not a full closing; you sign documents, but no money changes hands.

Special Considerations for a Wet Loan

Wet loans are allowed in all states except Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon, and Washington. In states with wet-settlement laws, banks must disburse funds within a set period—sometimes on the settlement day, or within one or two days after closing. These laws prevent banks from delaying funding after you sign the documents. For closing in wet states, all pre-funding conditions must be met.

What Is the Difference Between Wet Funding and Dry Funding?

Wet loans don't need complete documentation before payment, so they process faster. Dry loans take longer because lenders finish the paperwork before releasing funds.

What States Are Wet States?

All states except nine are wet states. The dry states are Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon, and Washington.

What Factors Do Banks Consider When Giving Loans?

Banks vary in their processes, but they typically look at your income, employment verification, debt, income stability, and credit history.

The Bottom Line

If you're looking to close on a home quickly, a wet loan can speed up the mortgage process. It gets you funding faster, but it's not without risks—you might borrow more than you can afford, making you a higher risk to lenders.