Owning a home can be a great way to build wealth, especially once you’ve accumulated a significant amount of equity. One popular way to access your home equity is by taking out a home equity loan, which is a type of second mortgage. It’s helpful to understand how long it takes to apply for home equity loans and receive funds so you can decide if they’re a good fit for your situation.
With home equity loans, you borrow from the equity in your house, or the stake in the property you actually own.
To figure out how much equity you have, take your home’s value and subtract your current mortgage balance. That’s your equity stake. You can usually borrow between 80% and 85% of your home’s equity.
Home equity loans offer lump-sum payments, so after closing, you’ll receive your loan amount in one single chunk. You can then use that money however you’d like — on home repairs, college tuition, or even paying off credit cards and other debts. Although you should carefully consider the pros and cons of using the money for each purpose, there are no rules about how you can use these funds.
Most home equity loans have fixed interest rates and terms lasting between five and 30 years. You’ll repay the loan in set monthly payments over the loan term, as you would with a traditional fixed-rate mortgage. Home equity loans use your house as collateral, so if you don’t make your monthly payments, the lender can foreclose on your property.
To get a home equity loan, you’ll need to apply, submit documentation, await a home appraisal, and then, finally, close on your loan. After that, you’ll receive your funds in one lump sum.
Here’s a look at how long each step generally takes:
Application: This is when you fill out the home equity loan lender’s application and submit any necessary documentation. You should be able to complete this step in one day.
Appraisal: Your lender uses the home appraisal to determine your home’s value — and how much equity you have to borrow from. You may receive the appraisal report between six and 20 days after the appraiser assesses the house.
Underwriting: In the underwriting process, the lender looks at your credit, financial information, and the details in your loan application to ensure you meet its requirements for a home equity loan. This can take up to one month.
Closing: After underwriting and approval, you must close on your second mortgage. Your closing appointment is when you will sign the loan documents, pay your closing costs, and finalize your loan. This should be done in one day.
Funding: You should receive your home equity loan funds after the right of rescission period closes. Legally, this is at least three business days.
According to the Mortgage Bankers Association, the industrywide average number of days from the home equity loan application to approval is 39 days. The exact amount of time this takes from start to finish depends on your home equity loan lender. For example, Better Mortgage claims it can close on HELs in only three days
How fast you submit the required paperwork, how quickly your lender orders an appraisal, and other factors all play a role in this timeline.
While your choice of lender plays a big role in the speed of your home equity loan, there are other ways to control how long the home equity loan process takes. If you’re hoping to speed up your home equity loan, try the following:
Prepare your documentation before applying. You’ll want pay stubs, bank account statements, tax returns, W-2s, and property tax bills on hand so you can submit them with your application. Any delays in submitting the required documentation will only extend the home equity loan process.
Keep your employment and income steady. Changes to your employment or income during the application and underwriting process can throw off your loan approval. Try to keep your job and hours stable — and in line with the information you submitted on your application — all the way through closing.
Maintain a steady financial profile. Similarly, any drastic changes to your bank account balances, debts, or credit score can slow down the loan process. Avoid putting large transactions on credit cards while you’re in the midst of a loan application. You should also make sure you’re paying your bills on time so that your credit score remains high, and avoid applying for any new loans or credit cards until you’ve closed on the home equity loan.
You should also be selective about which lender you work with. Consider a few different options, and ask them about their current workload and closing timelines.
The requirements for home equity loan approval will depend on your lender, but you generally need a credit score of at least 680, a debt-to-income ratio of 43% or less, proof of homeowners insurance, and sufficient equity in your home.
The biggest disadvantage of a home equity loan is that it uses your home as collateral. That means if you fail to make your monthly payments, the lender can foreclose on your house.
The answer depends on the loan term you choose and the interest rate you qualify for. If you were to take out a $50,000, 10-year home equity loan at an 8% rate, your payment would be just over $600 per month.
Laura Grace Tarpley edited this article.
