Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Wet Loan

What it is:

A wet loan is a mortgage in which the borrower gets the funding before all the paperwork is done.

How it works (Example):

Let's assume John Doe wants to buy the house for sale at 123 Main Street. The market is hot, and John needs to guarantee to the sellers that he can close the loan in under two weeks or the sellers won't take his offer.

Accordingly, John asks for a wet loan. The bank funds the mortgage and gets the closing done in two weeks even though it hasn't completed all the paperwork. For this he pays an extra fee.

After the paperwork is done, the bank reviews the documentation to ensure that everything is as it should be.

Why it Matters:

Some states prohibit wet loans because the risk of fraud or mistakes is much higher. However, the ones that permit wet loans also give potential home buyers the opportunity to jump on deals faster.