Warehouse line is a short-term revolving credit facility a bank extends to a lender, letting it fund loans it originates before selling them to a permanent investor. The originator draws on the line to close a loan, pledges that loan as collateral, then repays the draw when the loan sells. It provides leverage without deposits.
How Does a Warehouse Line Work?
A warehouse line works as a revolving facility: the originator draws cash to fund a closed loan, delivers the loan note to the warehouse lender as collateral, and repays the draw when a permanent investor buys the loan. The gap between funding and sale, called dwell time, is short. The line then frees up to fund the next loan.
Per Popular Bank and Wikipedia, loans typically sit on a warehouse line for 10 to 20 days of dwell time before the takeout investor purchases them. The warehouse lender advances most, not all, of the loan amount and holds back a slice as protection. That structure lets a thinly capitalized originator recycle the same line many times.
Term | Representative range |
Advance rate | 95% to 99% of loan face value |
Haircut | 1% to 5% funded by the originator |
Dwell time | 10 to 20 days per loan |
Structure | Revolving, secured by pledged loans |
Leverage | As high as 15 to 1 versus originator equity |
Cost | Interest plus per-loan fees during dwell |
Per Wikipedia and Popular Bank, warehouse leverage can run as high as 15 to 1, meaning an originator with limited equity can fund far more loan volume than its own capital would allow. The originator pays interest and per-loan fees for every day a loan dwells on the line, so slow investor purchases erode margin.
Why Warehouse Lines Matter
Warehouse lines matter because they are the plumbing that lets non-bank lenders originate at scale without a deposit base. Per the Mortgage Bankers Association, independent mortgage banks and non-depository lenders rely on warehouse facilities to fund loans they intend to sell into the secondary market. Without the line, a lender could only originate up to its own cash on hand.
The mechanism has real consequences for a commercial operator. When a debt fund or non-bank lender extends a bridge loan, that lender's own capacity often depends on a warehouse facility behind it. Per MBA data, credit companies, warehouse facilities, and other non-bank lenders held roughly $163 billion of maturing CRE balances in 2026, so warehouse funding sits directly in the CRE credit chain.
The quotable point for an operator: a warehouse line is a lender's line of credit, not a borrower's loan, and it is the reason a small originator can act like a large one.
Example
An independent mortgage lender holds $10,000,000 of equity and secures a warehouse line at a 98% advance rate, a 2% haircut, and 15 to 1 leverage. It originates a $2,000,000 loan and sells it after 15 days of dwell time.
Item | Calculation | Result |
Loan face value | Given | $2,000,000 |
Advance rate | Given | 98% |
Warehouse advance | 98% x $2,000,000 | $1,960,000 |
Haircut funded by originator | 2% x $2,000,000 | $40,000 |
Theoretical funding capacity | 15 x $10,000,000 | $150,000,000 |
The warehouse lender funds $1,960,000 and the originator funds the $40,000 haircut from its own capital. At 15 to 1 leverage, the lender's $10,000,000 of equity supports up to $150,000,000 of loans outstanding at once, so it can fund roughly 75 loans of this size in a rotating cycle. Each loan carries interest and per-loan fees during its 15-day dwell, and any loan that fails to sell ties up the line and its capital.
Variations and Edge Cases
Warehouse lines vary by collateral type, advance rate, and how strictly the lender polices dwell time. A residential mortgage warehouse line and a commercial bridge warehouse facility share the mechanics but differ in eligibility and pricing. The table below covers the variants that change how a line behaves.
Variant | Treatment |
Residential vs commercial | Residential lines fund agency-eligible loans; commercial lines fund bridge or transitional debt |
Advance rate | Higher-quality loans earn 98% to 99%; riskier collateral is advanced less |
Aged loans | Loans past a dwell limit may be curtailed or repurchased by the originator |
Committed vs uncommitted | Committed lines guarantee capacity; uncommitted lines can be pulled |
Repo vs warehouse | A repurchase agreement achieves similar leverage through a sale-and-buyback structure |
The common failure is dwell-time drift. If takeout investors slow their purchases, loans age on the line, per-loan fees compound, and the originator can face a margin call or forced repurchase. A warehouse line rewards fast turnover and punishes loans that sit, which is the opposite of a term loan.
Warehouse Line vs Bridge Loan
Warehouse line is often confused with a bridge loan, and both are short-term, but they serve opposite parties. A warehouse line is revolving credit a bank gives a lender to fund loans before selling them, secured by the loans themselves. A bridge loan is a single term loan a lender gives a property owner to acquire or reposition an asset.
The practical difference is who borrows and what secures it. The warehouse borrower is a lender pledging its own loan production as collateral and repaying from loan sales. The bridge borrower is a real estate operator pledging a building and repaying from a refinance or sale. One funds a loan pipeline, the other funds a property.
Frequently Asked Questions
What is a warehouse line of credit?A warehouse line of credit is a short-term revolving facility a bank extends to a lender, letting it fund loans it originates before selling them to a permanent investor. The originator draws to close a loan, pledges it as collateral, then repays the draw when the loan sells.
What is the advance rate and haircut on a warehouse line?The advance rate is the share of a loan's face value the warehouse lender funds, commonly 95% to 99%. The haircut is the remainder, roughly 1% to 5%, that the originator funds from its own capital. The haircut acts as a buffer protecting the warehouse lender against loss.
How long do loans stay on a warehouse line?Loans typically stay on a warehouse line for 10 to 20 days of dwell time, until the takeout investor buys them. Slow investor purchases extend dwell, compound per-loan fees and interest, and can trigger curtailment or a forced repurchase by the originator.
Related Terms
Debt Fund
Bridge Loan
CMBS Loan
Senior Debt
Cash Out Refinance