Guest Post from: Money.com
Going through the process of obtaining a home equity loan is no picnic. You have to be patient. But how long does it take to get a home equity loan?
There are different types of home equity loans with slightly different process times, but the overall average home equity loan process time cited by most lenders is two to six weeks. In some cases, it can take longer. Understanding the home equity loan process before applying for a loan can give you some advantage and help you to remain patient from submitting the application to receiving the funds.
The home equity loan process is the same as a first mortgage, mostly, because you are borrowing the equity from your home, which is used as collateral by the lender. The process includes the application, verification, approval, and closing steps. The home equity loan process time, however, can vary depending on the type of home equity loan you choose.
For instance, the processing time for a home equity line of credit (HELOC) can be shorter than with a fixed-rate home equity loan because a walk-through appraisal typically is not required by the lender. Instead, the automated valuation appraisal model, which uses existing data on the property including county tax assessments, can be used. Some lenders may even request a drive-by appraisal. Either of these approaches can save you as the borrower in process time and money. A walk-through appraisal costs $300 – $400 depending upon where you live.
The Application Process
The different types of home equity loans are fixed-rate, line of credit and cash refinance, which really is a first mortgage refinance, but many times are included under the umbrella of a home equity loan. Once you have determined your budget and have confirmed you can afford borrowing against your equity, your next step will be to decide which type of loan will work best for you.
The home equity loan application requires the following information from the borrower:
- Amount Requested (loan amount)
- Purpose of Loan
- Property Address, current market value, years acquired, original cost, existing lien amounts
- Applicant and Co-Applicant (if applicable) information including personal and employment information
- Monthly Income
- Assets and Liabilities
The Verification Process
Most lenders use the same qualification criteria for home equity loans, which are the following:
- Credit score of at least 620, preferably 700 or higher to get a better interest rate
- Debt-to-income ratio of 43% or less with some lenders allowing for up to a 50% ratio
- At least 15% to 20% of equity in your home
- Good mortgage payment history
- Your ability to repay the loan
Closing Process
Once your loan is approved by the underwriter, you will be contacted by your lender to schedule the closing. The lender is obligated to provide you with a closing disclosure form at least three days before you close on the home equity loan. Carefully go through the closing disclosure for any errors and contact your lender if you have any questions before going into the closing.
Once you finalize the closing transaction, you need to wait three days before you can access your funds. This three-day period is called the Right of Rescission where you as the borrower can cancel the loan without penalty. Lenders cannot legally release the funds until after this period is over and the loan has not been canceled.
To summarize, you can speed up the loan process and make things run smoothly by getting your paperwork in order before applying with a lender. Choose a reputable lender and take a pass on the “too-good-to-be-true” scammers out there. Read all of the lender’s paperwork including the fine print so you understand the loan’s interest rates, terms, prepayment penalties, balloon payments (if a HELOC), etc. If you receive a low appraisal, dispute it by talking to your lender to see what action you can take, if any.
Most of all, adopt the pace of nature and remain patient. That dream kitchen is now within sight and soon will be your reward for being patient during another financial transaction.
