Warehouse Line Advance Rates and Haircuts: How They Work

A warehouse line's advance rate is the percentage of each loan's balance that the warehouse lender funds; the haircut is the remainder, which the originating lender pays from its own cash. UWM Holdings, for example, says its warehouse loans are financed at about 97% to 98% of principal, "which requires us to fund the remaining 2-3%." Those two numbers decide how much equity a lender ties up in every loan it closes.

This explainer describes terms disclosed in public filings and published guides. Facility terms vary by provider, loan type and lender. The math below is illustrative. Nothing here is financial or legal advice.

What is a haircut on a warehouse line?

Many warehouse lines are written as repurchase agreements. The OCC's Comptroller's Handbook on mortgage banking says these work much like warehouse lines of credit, except the loans are "legally structured as being purchased by the bank rather than being held as collateral." In that setup, UWM describes the haircut as the gap between the cash it receives when it sells loans to the warehouse lender and their fair value. A 2017 repurchase agreement filed by M/I Homes defines a "Haircut Amount" as the loan's principal balance minus the price the bank paid for it.

What advance rates do lenders disclose?

Lender or provider	Advance rate disclosed	Source
UWM Holdings	About 97% to 98% of principal	2023 Form 10-K
Better Home & Finance	About 95% to 98% of principal; some loan types lower	2025 Form 10-K
Simmons Bank (provider)	Up to 99%	Product page
Velocity Financial, non-mark-to-market bank revolving facility (Nov. 2024)	82.5% performing loans; 55.0% past-due loans and REO	2024 Form 10-K

For private lenders, Mark Jury writes in an American Association of Private Lenders guide that warehouse facilities offer "the highest advance rates among leverage options." Balance sheet revolving lines, which hold loans until payoff, usually advance 50% to 80% of principal, subject to loan-to-value limits, he writes. Working-capital lines advance 10% to 25%.

Why can the advance be lower than the stated rate?

The stated rate is a maximum. Better and UWM both say the amount advanced "may be less than the stated advance rate" depending in part on the value of the loans. In the M/I Homes agreement, market value is set by the bank "in its sole good faith discretion," and a loan's value for borrowing can be cut to zero if it stops being eligible. If collateral value falls below the amount advanced, the bank can make a margin call. Under that agreement, a call made before 10 a.m. New York time had to be met by 5 p.m. the same business day.

Not every line marks to market. Velocity said it had five non-mark-to-market warehouse facilities and one modified mark-to-market facility at the end of 2024. In the same filing, it said the amount its facilities will finance can change with the delinquency performance of the pledged loans.

How does the advance rate change your capital needs?

Hypothetical example, not market data. A lender closes a $400,000 loan.

Advance rate	Line funds	Haircut (lender's cash)	Loans $2 million of equity can carry
98%	$392,000	$8,000	About $100 million
82.5%	$330,000	$70,000	About $11.4 million

The capacity column divides equity by the haircut share and ignores line limits, covenants and fees, which bind first in practice. While the loan sits on the line, the lender typically earns the spread between the loan's rate and the line's cost, as the OCC describes for warehoused loans. Hypothetically, at an 11% note rate and a 7.5% line cost, the 82.5% case yields $44,000 a year of interest against $24,750 of line interest, before points, fees and losses.

For pricing, covenants and dwell limits, see our complete guide to the warehouse line of credit, what it takes to qualify in warehouse line of credit requirements, and other options in alternatives to a warehouse line.