While these terms may conjure up images of alcoholic beverages, they really relate to the real estate business. Both wet and dry funding refers to the variable periods after the loan is considered closed when a new buyer can take possession of the property.
Based on the laws of the particular state where the mortgage was taken out, “wet settlement laws” need lending banks to distribute funds as soon as a particular period of time has elapsed from the closing date of the mortgage. Variations in the law can cause disbursement times to differ from the day of payment to within two days after closing. The laws were deliberately introduced to stop banks from delaying funding after borrowers have signed the necessary closing documents.
“Wet funding” and “dry funding” are two slang expressions that refer to the state of origin as far as the funding is concerned. Dry funding means that required paperwork required to officially close a loan does not have to be concluded on the date of closing and states that allow this are known as “dry” states. Wet funding is stricter and requires that all the required documents needed to close the loan must be ready and approved at the time of closure.
Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon and Washington are regarded as dry funding states and all the others are as wet as they come. A dry closing happens for the benefit and convenience of both the buyer and the seller and is actually not a closing at all. No money is distributed and the parties convene only to sign documents.
Dry funding assures the legality of the sale and deters counterfeit activities. Money is dispensed very quickly and the transaction is quite rapid, escalating the risk related with a wet loan. With the sale happening before the paperwork is concluded the convenience and speed must be thought of against the clear possibility of real estate fraud. The bank receives the loan documentation for evaluation as soon as the funds are transferred in the case of a wet loan, which in a way is like putting the cart before the horse.
You can understand the difference between wet and dry funding by doing research on these matters. Approaching house loans with caution is always the best protection from bank fraud.
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