Wet Loan

DEFINITION of 'Wet Loan'

A mortgage in which the funds are obtained before all required documentation is completed. Wet loans allow the borrower to purchase property in a more timely fashion and complete the required paperwork after the transaction. Conditions surrounding the use of wet loans differ based on state laws.

BREAKING DOWN 'Wet Loan'

In a wet-funded mortgage, the property seller will receive funds right away. After the transfer of funds, the bank will receive the loan documentation for review. Wet loans expediate the purchasing process by allowing the sale to occur before the paperwork. However, the added benefit of fast transactions comes at the price of increased risk. Because the seller receives funds before the paperwork is approved, the possibility of fraud and a loan default is greater.

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