Dry Loan
What is a Dry Loan?
A dry loan is a type of mortgage where the funds are supplied by the lender solely after the entirety of the required sale and loan documentation has been completed and checked on. The rules for dry loans contrast from one state to another, in view of state laws. States that require dry loans are alluded to as dry funding states, and real estate closings including dry loans are known as dry closings. Dry loans are likewise called dry funded mortgages.
Key Takeways
- A dry loan is a type of mortgage where the funds are supplied by the lender solely after the entirety of the required sale and loan documentation has been completed and explored.
- Something contrary to a dry mortgage is a wet mortgage.
- Whether mortgage loans are "dry" or "wet" is represented by state law.
- Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon, and Washington are states that require dry mortgages.
How a Dry Loan Works
Like different types of mortgages, dry loans are debt instruments secured by the collateral of a predetermined real estate property, which permit people and organizations to purchase real estate without paying the full value of the property front and center. The borrower reimburses the loan, plus interest, with a predetermined set of payments over a period of years until they ultimately own the property. Assuming the borrower stops paying the mortgage, the bank can foreclose.
Dry loans can be fixed-rate mortgages, where the borrower pays a similar interest rate for the life of the loan, or adjustable-rate mortgages (ARMs), which utilize a fixed interest rate for an initial term, after which the rate will vary in view of a specific market index.
In a dry mortgage, the seller receives no money from the lender until the loan documentation has been all fully screened and handled by the financial institution. In like that, dry funding gives an additional layer of protection to assist with guaranteeing the legality of the transaction. Since dry loans have a more slow closing process and no funds are dispensed at the closing, there is additional opportunity to address any issues that might emerge.
Dry Closing States
The states that require dry mortgage loans are Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon, and Washington.
A dry loan gives an extra layer of protection to the buyer and the lender against any remaining legal issues with the sale, however it can bring about a more slow closing interaction.
Dry Loan versus Wet Loan
Something contrary to a dry loan is a wet loan. A wet loan is a mortgage where the funds are made accessible before totally required documentation is completed, and the money changes hands at the hour of closing. The specific rules, similar to those for dry loans, are represented by state laws.
Upsides and downsides of Dry Loan versus Wet Loan
Dry loans offer the buyer and the lender greater assurance that there are no outstanding legal issues with the property engaged with the sale. That can, in any case, slow the closing system, and the seller will not receive their money until the documentation has been all completed. That may frequently require several days to a long time.
A wet loan can permit buyers and sellers to rapidly finish up a transaction more. Nonetheless, the tradeoff is that startling legal issues or different issues might emerge a while later.
The Bottom Line
A dry loan — either fixed-rate or adjustable-rate — is a type of mortgage where the funds are supplied by the lender solely after all the required sale and loan documentation has been completed and surveyed. The rules for dry loans vary from one state to another. Dry funding gives an additional layer of protection to assist with guaranteeing the legality of the transaction. Since dry loans have a more slow closing cycle and no funds are dispensed at the closing, there is additional opportunity to address any issues that might emerge.
