If you’re a homeowner trying to figure out how to access the equity you’ve built up in your home, a home equity loan might be the solution. But how long does it take to get a home equity loan?
The process isn’t as quick as many people would expect because several factors come into play, which include your credit history, the loan amount, and the lender’s requirements.
Depending on various circumstances, getting a home equity loan can take an average of two to six weeks. So keep reading as we review everything you need to know about the timeline, from application to closing.
What Is a Home Equity Loan?
A home equity loan, or a second mortgage, allows homeowners to borrow money using their home as collateral. The amount you can borrow is based on your home’s equity, which is the difference between your home’s current market value and the outstanding balance of your mortgage.
A home equity loan provides a lump sum you repay over time with fixed monthly payments, similar to a traditional mortgage.
One key benefit of a home equity loan is that the loan rates are usually lower than those of credit cards or personal loans because the loan is secured by your home.
How Does a Home Equity Loan Work?
When you apply for a home equity loan, the lender assesses your home’s value and your outstanding mortgage balance to determine how much equity you have. The maximum amount you can typically borrow is 85% of your home’s equity. This is subject to your credit score, income, and debt-to-income ratio.
The loan process involves the following steps:
- Choose a Lender: It’s a good idea to compare offers from multiple lenders, including your current loan provider.
- Apply: You’ll need to provide personal financial information, including proof of income, credit history, and details about your home.
- Get an Appraisal: The lender may require a professional appraisal to determine the current market value of your home.
- Approval: If approved, the lender will offer you a loan based on your equity and creditworthiness.
- Closing: After signing the loan documents, the funds are disbursed, and you’ll begin making loan payments according to the terms.
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Home Equity Loan Requirements
The requirements needed to qualify for a home equity loan vary by lender, but most generally require borrowers to have:
- 15% to 20% minimum of home equity.
- A minimum credit score of 620.
- A debt-to-income (DTI) ratio below 50%, ideally 43%, is preferred.
- Steady income record history.
- Additionally, your lender may require an appraisal to verify your home’s value, and you’ll pay the bill at closing.
When applying for a home equity loan, it’s essential to consider the equity loan rates and interest rates offered by different lenders.
How Fast Can You Get a Home Equity Loan?
So, how long does it take to get a home equity loan? The entire equity loan process typically takes two to six weeks from when you submit your application to when the funds are disbursed.
However, several factors can speed up or delay the equity loan process. These factors include lender efficiency, credit history, missing or incomplete documentation, the underwriting process, and appraisal delay.
If everything goes as planned, you can have the funds in about two weeks. However, the process typically takes four to six weeks, especially if there are any appraisal or document verification delays.
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How Soon Can You Get a Home Equity Loan After Closing?
If you’ve recently closed on a home purchase, you might wonder how soon you can get a home equity loan after closing. Lenders typically require that homeowners build up some equity before applying for a home equity loan.
This means that you’ll probably have to wait a few months to a year after closing before you’re eligible to borrow against your home’s equity.
On the other hand, you may be able to apply for a home equity loan sooner if you made a significant down payment or if the value of your home has increased since you bought it. It’s always a good idea to check with your lender about their requirements for new homeowners.
Frequently Asked Questions
What Can a Home Equity Loan Be Used For?
Home equity loans are often used for large expenses, such as home renovations, emergency medical bills, paying off high-interest debt, or other significant financial needs.
How Long Does a Home Equity Loan Take To Close?
Once approved, closing typically takes one to two weeks. This period involves reviewing and signing the loan agreement, processing the final paperwork, and disbursing the loan funds.
How Long Does It Take To Get a Home Equity Loan After Appraisal?
Once the appraisal is completed, the lender must review the results and finalize the loan terms. Depending on the lender’s timeline, this process usually takes one to two weeks.
Can You Use a Home Equity Loan To Pay Off a Mortgage?
Using a home equity loan to pay off a mortgage could work if you can borrow more than you owe on your current mortgage. Take the interest rate into account as well.
How Much Can You Borrow on a Home Equity Loan?
The amount you can borrow essentially depends on how much equity you have in your home. The borrower will also consider factors like your credit score, your home’s appraised value, and your debt-to-income ratio.
Now that you know how long it takes to get a home equity loan, deciding whether this type of loan is the right financial move for you is crucial. While home equity loans offer the benefit of lower equity loan rates compared to other loan options, they come with the risk of your home being used as collateral.
So whether you’re planning a significant renovation, consolidating debt, or funding a large expense, understanding the process and timeline can help you make the best decision for your financial future.