How Long Does It Take To Get A Home Equity Loan?
As you pay down your mortgage and your home increases in value, you build equity – one of the most valuable benefits of owning a home. If you need cash for a major expense, such as renovations or to pay for a college education, a home equity loan can let you borrow thousands of dollars at low interest rates. Applying for a home equity loan is a lot like applying for a mortgage – it takes time. Read on to learn how long does a home equity loan take from start to finish.
Key Takeaways:
- It can take two weeks to two months to get a home equity loan, depending on your lender and financial information.
- Making sure you meet your lender’s requirements will help you avoid delays in getting a home equity loan.
- Being ready to provide the necessary documents and set up a home appraisal can help you expedite the process.
A Timeline For Getting A Home Equity Loan In 7 Steps
How long it takes to get a home equity loan varies by lender. Typically, it can take anywhere from two to eight weeks. Here’s a look at the steps to getting a home equity loan and a timeline for how long you can expect each step to take.
1. Make Sure You Meet Loan Requirements
Review your finances to make sure you’re in good shape to take on a home equity loan and can meet your lender’s requirements. While the exact requirements vary by lender, they commonly include:
- Having good credit. You’ll typically need a credit score of at least 680 to get a home equity loan. Some lenders let you access more equity with a higher credit score.
- Having enough equity. You need to have enough home equity to borrow. Lenders typically require you to have at least 15% to 20% equity in your home before you can borrow against it.
- Getting a home appraisal. The appraisal will determine the home’s fair market value, which affects how much equity you can borrow. Some lenders will allow you to borrow as much as 90% of the equity you have in the home.
- A maximum DTI ratio. Your debt-to-income ratio reflects how much of your income is taken up by debt. Lenders typically require that your DTI not exceed 50%.
- Proof of income. Be prepared to provide W-2 forms, 1099 forms, recent pay stubs, and tax returns to show the lender that you have the income to repay a second loan.
How long it takes: A few hours to a few days.
2. Decide Between A Home Equity Loan And A HELOC
There are two types of loans for accessing your equity without refinancing your primary mortgage: a home equity loan and a home equity line of credit. You receive the money as a lump sum with a home equity loan. With a HELOC, you get a revolving line of credit that you can use as needed up to a maximum amount. Home equity loans typically have a fixed interest rate, while HELOCs usually have an adjustable rate.
A home equity loan might be a good choice if you know exactly how much you need to borrow. If you need to pay more than one set of expenses over time, then a HELOC might be a better fit.
How long it takes: Take the time you need to consider what you’ll be using the money for and how much you’ll need.
3. Choose A Lender
While you can get a home equity loan from your primary mortgage lender, you don’t have to. Shopping around may help you find a loan with better terms at a different lender. Your current lender may offer you a discount to keep your business, but taking time to get quotes from other lenders could save you a lot in interest and fees.
How long it takes: You should be able to collect quotes from multiple lenders in a few days or weeks.
4. Submit Your Application And Documents
Each lender has its own application process for getting a home equity loan. However, you can expect to be asked to provide the following documents and information:
- W-2 or 1099 forms.
- Pay stubs.
- Tax returns.
- Your Social Security number.
- Property tax bills.
- Proof of homeowner’s insurance.
How long it takes: If you’re organized, you can assemble the documents, fill out the application, and submit it in a day. If you have to search for these documents, gathering and submitting the necessary paperwork may take a week or two .
5. Schedule A Home Appraisal
To know how much equity you have, you need a home appraisal from a licensed inspector, who will examine the home, research the market, and estimate its fair market value. Your lender will require an appraisal to determine how much equity you have.
If you’ve maintained the home or made improvements, the appraisal may show your home’s value has appreciated since you bought it. This would give you more equity to borrow.
How long it takes: How quickly you can schedule the appraisal could take a few days to a few weeks, depending on where you live and how busy local appraisers are. The appraisal itself can take 30 minutes to a few hours. You can expect the appraisal report to arrive anywhere from six to 20 days after the inspection.
6. Await Underwriting
Now, you wait for underwriting. Your lender will review your application, the results of the appraisal, and your financial information – including your current credit score, payment history, employment verification, and DTI ratio – and make a final decision on your loan and its terms.
How long it takes: Lenders can take up to four weeks to review your finances, depending on the complexity of your financial situation.
7. Review And Close On The Loan
Once your loan’s approved, it’s time to close on your new home equity loan. You’ll sign all the necessary loan documents with a notary public present. Some states require you to have an attorney present as well to confirm that the loan is legally compliant.
If you take out a home equity loan, the funds will be deposited in a bank account. Lenders offer different ways to access HELOC funds, whether through an online transfer or a HELOC account card that acts much like an ATM card.
How long it takes: Closing itself should take only a few hours. How long it takes to get the money will depend on your lender and payout method, but you should receive it in about three business days.
What’s Your Goal?
Home Purchase
Home Refinance
Tap Into Equity
3 Factors That Can Delay Your Home Equity Loan
Here are some factors that could delay the home equity loan process time.
1. Documentation Errors
If you find errors in your loan paperwork, you’ll need to contact your lender and have them correct the problems and reissue the documents. Submitting incorrect or incomplete financial documentation to the lender also can slow down the loan process.
2. Appraisal Delay
The appraisal is an important step in the process, but unfortunately, the timing of this part is sometimes out of your control. If you’re working with an appraiser who’s busy and in demand, it could take a week or two to get the appraisal conducted and receive the report.
“Delays can occur if there are discrepancies or issues with the property‘s valuation,“ says Mike Wall, a Realtor at eXp Realty and CEO of EZ Sell Homebuyers in Dayton, Ohio.
3. Longer Closing Process
The closing process can take longer than you might expect, depending on the lender you’re working with and the laws in your state. For example, your lender may need you to appear in person to sign the documents with a notary or attorney present.
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3 Ways To Expedite Your Home Equity Loan
Here are some steps you can take to ensure the process of getting a home equity loan runs smoothly.
1. Improve Your Finances
You can make it easier for the lender to approve your application by improving your finances. You can boost your credit score by making payments on time, catching up on any credit accounts that are past due, and paying down your credit card balances. Another advantage of paying down debts is that it will reduce your DTI ratio and increase your chances of getting approved for your loan.
2. Gather Documents In Advance
Preparing your financial documents before you apply for a home equity loan can help speed things up. “Having all necessary documents and information ready can speed up the underwriting process,“ Wall says. Chances are your lender will need those income, tax, and appraisal documents – so don’t wait for them to ask before digging them out.
3. Increase Your Home Equity
You’ll need at least 15% to 20% equity in your home before taking out a home equity loan. If you’re not there – or if you have negative equity because your home’s value has decreased – you can take steps to increase your equity. One way to build equity is to make additional payments to pay down your loan principal. Another way to build equity is to make improvements that increase the home’s value.
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The Bottom Line
How fast you can get a home equity loan depends on a number of factors. You’ll need to meet your lender’s eligibility requirements, get the home appraised, and pass the underwriting process to get approved. To make sure your home equity loan process goes smoothly, be sure to prepare all the necessary documentation and schedule the appraisal in advance.
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