A home equity line of credit gives you more financial flexibility. You can use this capital for home improvements, vacations, and any other expense. Banks don’t put restrictions on how you spend the funds, but some people need a HELOC quickly. Discover how long it takes to get a HELOC and what the process looks like.
What is a HELOC and How Does It Work?
A HELOC is a home equity line of credit. It’s a funding source for homeowners who have built equity in their homes over the years. Most lenders let you have a combined loan-to-value ratio of 85%. That means if you have a $600,000 mortgage on a $1 million home, you could borrow up to $250,000 for your home equity line of credit. The $250,000 line of credit and $600,000 mortgage add up to $850,000, which represents an 85% LTV ratio.
Unlike a home equity loan, you don’t have to pay interest on a HELOC right away. You only have to pay interest when you borrow against the line of credit. Some homeowners take out HELOCs as safety precautions and never intend to use them. While a home equity line of credit provides extra cash in an instant, you should proceed with caution. Your home becomes collateral for the HELOC, and if you can’t keep up with payments, the lender could take your home.
You don’t have to pay your HELOC throughout the draw period, which is typically 10 years. Once that draw period expires, the unpaid balance turns into a loan that you must pay back. You can decide on the terms, but most of these loans have 20-year terms. Paying off your HELOC during the draw period will minimize interest accumulation and make it easier to keep up with payments during the repayment period.
Typical Timeline for Getting a HELOC
The amount of time it takes to get a HELOC depends on the lender, but most financial institutions take over a month to give you a home equity line of credit after you submit an application. However, online lenders can get it to you in three weeks, and you may have a shorter wait time in some cases.
The Process of Getting a HELOC
Knowing how a HELOC works can help you access capital sooner and get more of what you deserve. You can also save money by understanding what goes into getting a home equity line of credit.
Preparing Your Requirements
Each lender has requirements you must fulfill before requesting and successfully obtaining a HELOC. For example, you could check the lender’s requirements on your home equity, debt-to-income ratio, and credit score. Interest rates and terms vary, but if you have a high credit score and low debt-to-income ratio, you will have more choices and lower interest rates. A stable income source will also help, and banks will check your employment history.
You will also need personal identification, a Social Security card, bank account and mortgage statements, and details about your home. Lenders may want to know when your home was built and how much you paid for it. You will have to provide any information about insurance, liens, and HOA dues as well. Most lenders require similar documentation, so if you assemble the resources for one lender, you have them for future use in case your first application gets denied.
Choosing a Lender
You should work with a lender who is likely to approve your request for a home equity line of credit. If you have a 650 credit score, and a lender requires a 700 credit score to get a HELOC, you should not submit an application. Each HELOC application will trigger a hard credit inquiry that will lower your score by a few points. While a single hard credit check isn’t a big deal, several of them put together can have a meaningful impact on your credit score. You should also compare interest rates, terms, fees, and other details.
Submitting Your Application
After gathering the necessary documents and finding a good lender who offers HELOC loans you qualify for, it’s time to submit your application. Again, make sure you provide everything you need the first time to avoid any delays.
Getting an Appraisal for Your Home
Home equity lenders use your home’s equity and outstanding balance to determine how much capital they will offer. Lenders will request a recent home appraisal during the application process to run their calculations and maintain their threshold percentage.
The appraisal can also help you if the appraiser determines your home is worth more than you anticipated. A home with a higher value can command a higher HELOC balance.
Underwriting
The underwriting process is when the lender does their due diligence. Lenders will look at your credit report, income, DTI ratio, bank statements, and other information you provided in your application. This process can take over a month at traditional banks and credit unions, but some online lenders have quicker underwriting processes.
Closing
The final step is closing on the loan. You will have to pay closing costs to get your financing, and you will have to wait an additional four days to get access to the capital. Lenders give borrowers three days to cancel the loan if they change their minds. Some borrowers may have needed the loan for an emergency expense that suddenly went away or don’t like the prospect of having that much debt they can tap into at any time. After the three-day period, you get access to the line of credit.
How to Get a HELOC Faster
HELOCs aren’t the best loans if you want same-day funding. However, these credit lines can provide significant cash flow at a more affordable rate than other financing options. Following these strategies will speed up your path to a HELOC.
Ensure Your Documents are Complete
Organizing your documents and presenting them to a lender can trim a few days from the application process. Lenders must look at these documents to assess a borrower’s level of risk. If the borrower does not send all of the necessary documentation, the lender will have to follow up and prolong the process.
Shop Around for Lenders
Financial institutions usually have the longest wait times. If you want a quicker turnaround, you can expand your horizons and look for online lenders who promise a quicker delivery. You won’t find same-day funding for a HELOC, but you could get your capital in three weeks instead of six weeks.
Look for a HELOC Without an Appraisal
A home appraisal is a staple component of many HELOC application processes, but not all lenders require it. Instead, some lenders use an automated valuing method to guesstimate your property’s value. An algorithm looks at property valuations in your area and assigns a valuation to your home. This approach saves both parties time and money, but if you don’t like the assigned home value, you can consider getting an appraiser to look at your home.
Don’t Include a Co-applicant
The lender must review each loan applicant’s personal and financial information. Adding a co-applicant to your HELOC application extends the underwriting process. When you only list yourself on the loan, the lender only has to do research on one person to determine their level of risk.
Review Your Credit Reports
Lenders will look at your credit report to assess your application, so it’s best to get a copy and see what the lender will see. Your credit report reveals your score and a history of your financial activity. If you made a late payment, it will show up, but your on-time payments will also appear.
Your credit report helps you determine if you qualify, but you could also spot mistakes on your report. Some of these mistakes can hurt your credit score, but disputing these errors can raise your score. It’s best to request a copy of your credit report before applying for a loan so lenders use your updated credit score when deciding interest rates. You can get a free copy of your credit report each year from each of the major credit bureaus — Experian, Equifax, and TransUnion.
Follow Up With the Lender
You shouldn’t follow up with a lender the day after submitting your application. Three weeks would be a good turnaround for a HELOC. However, you can check in with the lender two weeks later to see where they are with the process and if they need any additional information. Staying in the loop and following up with the lender can give them the extra push to prioritize your loan application.
