If you need money for large expenses or debt consolidation, you might think about getting a home equity loan or line of credit (HELOC). Home equity loans are a type of second mortgage loan that let you take out a lump sum loan from the established equity in your house. A HELOC is a variable credit line that you can access when needed, protected by your equity.
Getting a home equity loan, or HELOC, typically takes two weeks to two months, depending on the lender. How much preparation you put in before applying and what the lender needs to determine the value of the house and underwrite the loan will determine how quickly the process moves along.
It helps to know what to anticipate from the application process and the potential length of time you may have to wait for funding if you have never applied for a HELOC or home equity loan.
What Is a Home Equity Loan?
You can borrow money using your home as collateral with a home equity loan, also known as a second mortgage. Your lender makes a one-time payment to you, which you must repay over a predetermined period of time—typically five to twenty years—with interest each month. Your income, credit history, the current value of your home, and the amount of equity you have accumulated all play a role in how much you can borrow. Several lenders prefer that you borrow no more than 80% of the equity in your home, according to the Federal Trade Commission (FTC).
Home Equity Loan Requirements
Lender requirements for home equity loans differ, but typically speaking, borrowers must be in possession of:
- Minimum of 15% to 20% of home equity
- Credit score of at least 620
- Debt-to-income (DTI) ratio below 50% (below 43% is preferred)
- Steady income record
In addition, your lender might need an appraisal to verify the value of your house; the cost will be borne by you at closing.
As of March 2022, the average cost of an appraisal for a single-family home is $375 to $450, per Fixr. com, which offers information, cost estimates, and comparisons for home installation, repair, and remodeling projects
How Does a Home Equity Loan Work?
The basic steps to obtaining a home equity loan are as follows, if you are certain that you meet the minimum loan requirements:
- Choose a lender. Comparing offers from at least three lenders—including the one you currently have a loan with—is a smart idea.
- Apply. You will be required to provide multiple documents and respond to inquiries regarding your income, debt, and residence.
- Get an appraisal. If your lender needs an appraisal, they will set you up with a qualified, impartial appraiser who is experienced in the area.
- Underwriting. An underwriter evaluates all the information the lender receives, including your application, supporting documents, and the appraisal report, before determining whether to approve or reject your loan application.
- Close. If the loan is approved, you will sign the loan documents and complete the loan in person with your lender, your lawyer, and a notary. If you decide to change your mind, you have three days to repay the loan. If you maintain the loan, you will get your money back at the conclusion of that time.
How Fast Can You Get a Home Equity Loan?
The entire process of applying for a home equity loan can take two weeks to two months. A few elements—some within your control and some not—have an impact on the timeline:
- How well youre prepared. Copies of your most recent mortgage statement, property tax bill, and proof of income will be required by your lender. It could take your lender longer to process your application if you don’t have these on hand.
- The underwriting process. Your credit score, DTI ratio, and other financial information will be examined by your lender. Your financial situation may require you to provide more information, which could make the process take longer.
- Timing of the appraisal. To verify the value of your home and make sure the loan amount makes sense, your lender will engage a certified independent appraiser. If the appraiser is very busy, this step may take longer than anticipated.
- Timing of the closing. In certain states, a lawyer must be present when a loan is closed. If so, you may need to reschedule the closing in order to accommodate your attorney’s hectic schedule.
Can You Use a Home Equity Loan to Pay Off a Mortgage?
Home equity loans are frequently used by homeowners to cover major expenses like college tuition and renovations. Nonetheless, you can use the money from a home equity loan to pay for anything, so you could use it to pay off a mortgage. If you are able to lock in a lower interest rate and monthly payment, this strategy may make financial sense. But before you make any decisions, take into account the home equity loan closing costs and any prepayment penalties on your current loan.
Can You Pay Off a Home Equity Loan Early?
Early repayment of your home equity loan may enable you to save hundreds or thousands of dollars, but this isn’t always the case. Prepayment penalties ranging from several months’ interest to a percentage of the loan balance are imposed by many lenders.
If you currently have a loan, find out if there is a prepayment penalty clause by consulting your loan documents or contacting your lender. This will assist you in determining whether it makes financial sense to pay off the debt early. Look for lenders who don’t charge prepayment penalties if you’re in the market for a home equity loan and intend to pay it off early.
What Is a HELOC?
Although it functions differently from a home equity loan, a home equity line of credit (HELOC) allows you to borrow against the equity in your house. Your lender gives you a fixed lump amount with a home equity loan, which you repay with fixed interest and fixed payments. A HELOC, on the other hand, is a revolving credit line with adjustable interest rates and payments.
The Bottom Line
If you need money for major expenses like college tuition, medical bills, or home repairs, a home equity loan can be helpful. However, while you wait for your lender to process, approve, and close the loan, it may take several months to receive the money. Accurately filling out the loan application and having your paperwork ready will speed up the process and enable you to pay for your large expenses more quickly. Article Sources: Investopedia mandates that authors cite original sources to bolster their claims. These consist of government data, original reporting, white papers, and conversations with professionals in the field. When appropriate, we also cite original research from other respectable publishers. You can read more about the guidelines we adhere to when creating impartial, truthful content in our
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FAQ
How fast can I get my home equity loan?
Loan type: Typical turnaround time: two to four weeks for a home equity loan; two to six weeks for a home equity line of credit (HELOC); six to eight weeks for a cash-out refinance
How long does it take to hear back about a home equity loan?
Depending on your financial circumstances, state laws, and the preparation of necessary documentation (such as W2s and 1099 tax forms and proof of income), the process of obtaining a home equity loan may take two weeks to two months. The home equity loan process time varies from lender-to-lender.
How long is the approval process for a home equity loan?
The processing period for a HELOC can be completed quickly once the borrower submits their loan application. Meeting the lender’s eligibility requirements is the next step, which we will go over in detail. A HELOC application and approval typically take two to six weeks.
Can you be denied for a home equity loan?
If your application is denied, it is most likely because you don’t meet the requirements of the lender for a home equity loan in one of these areas: Available equity: Generally, you need more equity than the 2020% equity built up to be eligible for a home equity loan. Credit score: If your score is less than 620, few lenders will approve you.
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