Home equity loans allow you to convert your equity into cash. You could borrow up to 85 percent of your home value minus the outstanding mortgage amount. But there are qualification criteria you must meet to qualify for funding.
This guide explores the timeline for home equity loan processing and factors that can cause funding delays.
How Long Does It Typically Take to Get a Home Equity Loan?
The process can take anywhere from a few weeks to four months. It depends on the lender’s current workload and delays that could surface during the review, underwriting, and closing process.
Initial Consultation and Application
Your journey starts with the initial consultation and application phase, where you’ll meet with a lender to discuss your needs and the terms, such as the loan term, which typically ranges from 5 to 15 years. You will need to submit financial documents for review during this stage, which could take anywhere from a few days to a week.
Appraisal and Evaluation
The home appraisal is the next step. It determines the value of your property and the amount you can borrow, making it one of the most important steps in the process. Regarding the timeline, it could be between a few days to a couple of weeks, depending on the housing market in your area and the availability of licensed property appraisers.
Approval and Closing Stage
During the approval and closing stages, your lender will review the appraisal and your creditworthiness and use your home as collateral to finalize the loan terms. Upon receiving the final approval, the lender has to close the loan. The process loan involves some additional paperwork, and you may have to pay closing costs. Depending on the lender, it could take a few days to a week to receive the loan proceeds.
What Can Affect Approval Time for a Home Equity Loan?
Lenders work diligently to process loan applications, but approval and funding delays are possible for many reasons. Below are issues that sometimes arise with home equity loan applications:
Credit Score
The lender will check your credit score when you apply and before the loan closes. Suppose your score drops during this period, or you add additional debt to your plate. In that case, the lender could delay or deny your application.
Application Documentation
If you fail to submit the requested documentation promptly, the processing of your application could be delayed. So, it’s important to upload all the necessary documents when you apply and swiftly respond to the underwriter’s requests during the review process.
Verification Process
The underwriter reviews your financial documents and property information to ensure you meet the home equity loan criteria. If there are discrepancies between what the lender finds and the information in your application, approval times could be affected.
Home Valuation Factors
Lenders coordinate with homeowners to have the home evaluated. This requirement could slow up the process if the appraiser is booked and won’t be available when needed.
The Typical Process of Getting a Home Equity Loan
Before you apply for a home equity loan or home equity line of credit (HELOC), it’s essential to familiarize yourself with the process.
1. Review the Common Requirements for a Home Equity Loan
Traditional lenders, credit unions, and online lenders have specific guidelines for home equity loans. However, you generally want to have a credit score of at least 620, a debt-to-income ratio (DTI) that doesn’t exceed 43 percent, and 15 to 20 percent in equity. You should also have a steady, verifiable source of income. (Quick note: some lenders accept homeowners with DTI ratios of up to 50 percent).
The lender will likely require an appraisal to determine your home value and potential loan amount. Most extend home equity loans between 80 and 85 percent of your home’s value minus the amount owed on your mortgage. For example, if your home is worth $485,000 and you owe $365,000, you could qualify for up to $47,250 ($485,000 * .85 – $365,000).
2. Find a Lender
Not all lenders are the same, so you want to shop around to find a good match. Many offer prequalification tools you can use to view potential loan offers and terms without impacting your credit score.
During your search, you should also ask the lenders what documents you’ll need to apply for a home equity loan. This could expedite the review process and get you to the closing table faster.
3. Apply for the Loan
Select a lender from your list of options and complete the application in its entirety. Review for accuracy, and be sure to upload any supporting documents required by the lender.
4. Complete a Property Evaluation
The next step is to get an official property evaluation. Lenders will generally coordinate with you to get this done but know that it should be completed by a licensed appraiser.
5. Underwriting Phase
Once the appraisal is finished, the underwriter handling your file will review the figures along with your credit history and financial information to determine if you qualify for a home equity loan.
6. Closing Phase
During this step, you will review the closing paperwork and sign on the dotted line. Once the loan closes, funds will be disbursed to your account in a lump sum.
How To Speed Up The Home Equity Loan Process
Although securing a home equity loan involves a waiting period, you can take proactive steps to expedite the process.
Improving Your Credit Score
Your credit score plays a significant role in whether or not you’ll be approved for a home equity loan. If it’s on the lower end, here are some ways to improve it:
- Check your credit report for errors and dispute any inaccuracies
- Make timely payments on credit cards and other loans
- Aim to keep your credit utilization below 30 percent
- Refrain from applying for new credit
- Don’t close old accounts in good standing
Paying Down Debt
Reducing your debt load can boost your approval odds and potentially speed up the loan process. Some tips to help you get started:
- Pay more than the minimum on your credit card balances to reduce overall debt.
- Consider using a debt snowball or avalanche method to tackle debts strategically and efficiently.
Ensuring All Documentation Is Correct and Complete
Lenders will scrutinize your documentation, so accuracy is paramount. Here are some tips to help make the process smoother:
- Before applying, gather all necessary financial documents, such as pay stubs and tax returns.
- Double-check your application and supporting documents for completeness and correctness to avoid delays in processing.
Potential Delays In The Loan Process
Obtaining a home equity loan requires a meticulous review of several components by the lender’s underwriting team that can contribute to delays in the lending process. You must be aware of these potential setbacks to manage your expectations and timeline.
Processing Delays
You may encounter processing delays when attempting to get a home equity loan. As mentioned above, these can originate from various sources, such as gathering necessary financial documents or navigating longer underwriting times due to high loan demand. If your financial situation is complex, the lender may need additional time to verify your information.
Title Search Delays
Title search delays emerge when there is difficulty in confirming the legal ownership of your property. Issues like previously undiscovered liens or encumbrances can significantly slow down the process. Ensuring that all property-related documents are in order beforehand can mitigate such delays.
Appraisal Delays
Delays related to the home appraisal are also common. The valuation of your home is vital in determining the loan amount. Scheduling conflicts with appraisers, discrepancies in property valuation or findings that necessitate further inspection can push back your loan timeline. So, it’s essential to schedule the appraisal as soon as possible and prepare your home to be appraised to help prevent these delays.
What To Expect When Applying For A Home Equity Loan
When you apply for a home equity loan, understand that the timeframe can vary. Typically, you’re looking at a period ranging from a few weeks to as long as four months for the entire process. This includes application, approval, and receipt of funds.
To help expedite the process, be prepared with a solid understanding of your financial situation and the lender’s guidelines. It’s equally important to have the paperwork you’ll need handy before applying. Lenders will closely examine your debt-to-income ratio and creditworthiness to establish your eligibility for the loan.
Also, be proactive in submitting your documents and responding promptly to any lender inquiries to streamline the process. Doing so helps make the process more efficient and could boost your approval odds so you can get the funds you need sooner rather than later.
