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Getting a mortgage can take a few months but is the same true for getting a home equity loan? How long does it take to get a home equity loan?
After making payments on a mortgage, one option for pulling money out of the house is a home equity loan. Homeowners use home equity loans to pay medical bills, college tuition, home improvements, and help with debt consolidation efforts.
Getting a home equity loan isn’t the fastest way to get money, but they often feature lower interest rates than personal loans. Equity loans may also help your family avoid going into credit card debt for planned expenses like home renovations. Home equity loans can also help erase existing debt with a lower interest payment than a personal or car loan.
How Long Does it Take to Get a Home Equity Loan?
With most lenders, the time it takes to tap into your equity is anywhere from a few weeks to five weeks. The most critical factor in gauging the amount of time it will take is how much preparation you put into the overall process, as well as the lender you choose.
The lender must verify the value of your home through an appraisal, calculate your loan to value ratio, and will also need to look at your credit report and several personal documents.
You can speed up the process of getting a home equity loan by gathering your documents before you apply to borrow money. Some of the documents you’ll need include bank statements, a current mortgage statement, tax returns, pay stubs, and W-2s.
You may find it helpful to call your preferred lender and ask for a list of required documents.
What Can Slow the Loan Process Down?
One of the biggest reasons the home loan process isn’t completed in a timely manner is insufficient documentation. Always double-check that you have all the documents the lender requires before submitting your application.
In most cases, the verification process is what takes the longest amount of time. The lender must examine all facets of your application and verify the information you’ve shared.
After the lender completes their verification process, they’ll conduct a home appraisal. The only barrier to getting a home appraisal done quickly is a busy appraiser.
The final step is the closing process, and you may run into some minor scheduling delays if your state requires a lawyer to witness the process with the notary.
Choosing the Fastest Home Equity Lender
You may find it helpful to contact multiple lenders before you apply and ask about their approval timeline. Consider asking the following questions, which can help you figure out which lender will be most receptive to your application, as well as the lender who will give you the fastest home equity loan approval.
- What’s the minimum credit score for approval?
- What’s the appraisal fee for a home equity loan?
- What are the closing costs associated with the loan?
- Is the repayment period five or ten years?
Many lenders will give you all the basics about a possible loan before submitting your official home equity loan application. You may learn your tentative loan amount, how much equity you can use, and the interest rate you may qualify for with your current credit history and financial situation.
Often, online lenders offer the quickest approval timelines because much of the process involves the electronic transfer of documents.
Qualifying for a Home Equity Loan
When you apply to a lender, bank, or credit union for a home equity line or loan, you’ll need to meet certain thresholds. The essential qualification is achieving at least 15 to 20 percent equity in the home. You’ll reach this through your regular monthly payments or by appreciating the home’s value over time.
Applicants must have a good credit score to qualify for an equity loan, but some banks will approve a loan with a FICO score as low as 620, however interest rates are usually higher for low-score applicants. Lenders typically like to see steady employment and may examine tax records or pay stubs during the application process.
Lenders also like to see a low debt-to-income ratio of no more than 50 percent, and some banks prefer ratios as low as 43 percent. Remember that your existing mortgage will factor into the debt-to-income ratio, so it’s not solely the high-interest debt you’re trying to get rid of with a new home loan.
FAQ for Home Equity Loans
Is a home equity loan the same as a home equity line of credit (HELOC)?
An equity loan is a lump sum amount of money that the lender disburses to you, and you pay back over a set amount of time. A HELOC is like a credit card where your home’s equity is used to grant you a line of credit that you can borrow at will.
Do equity loans have a fixed interest rate or variable interest rate?
Most home equity loans feature a fixed rate, which can help you plan for the future by eliminating surprise rate hikes and more significant payments down the line. A fixed-rate loan means a fixed monthly payment until you pay off the loan balance.
Is an equity loan a second mortgage?
A home equity loan is a second mortgage because it’s a second loan you’re taking out against the value of your home. You already have mortgage payments on your initial home loan, and an equity loan is a second monthly payment.
Is an equity loan or HELOC better?
The decision to get an equity loan over a HELOC is a personal decision that depends on your circumstances. You may want to secure the low-interest rate of a home equity loan and the lump sum you can use in its entirety while making payments. Or, you may choose a HELOC, where you’ll select from variable interest rates and a loan that feels more like a credit card.
Is a home equity loan the same as cash-out refinancing?
A cash-out refinance, and a home equity loan are both examples of a homeowner borrowing against the current equity in their home. However, a cash-out refi is a new mortgage loan, and a home equity loan is a second mortgage loan. Either option is an excellent way to access some money from the equity in your home.
How long does it take to get a home equity loan?
The quickest you can expect home equity loan approval is a few weeks. At the longest, you might wait two months.