If you’re approved for a home equity loan, you won’t receive the funds right away. The lending process, from start to finish, takes time. But that doesn’t mean you’ll spend several months waiting around for the loan proceeds to hit your account. Here’s a closer look at the funding timelines for home equity loans, how to speed up the process and tips to help avoid processing delays.
Overview of Home Equity Loans
A home equity loan is a debt product that acts as a second mortgage. The amount you can access is based on the equity you have in your home or the difference between its value and your mortgage balance. Most lenders cap this amount at 85%, and the loan comes with a fixed interest rate. So, you’ll get predictable monthly payments and know what to expect in borrowing costs over the repayment period.
To illustrate how equity loans work, assume your home is worth $465,000, and you owe $295,000 on the mortgage. You could potentially get approved for a loan of up to $100,250 ($465,000 * .85 – $295,000). If you decide to move forward, you’ll repay the loan proceeds in equal monthly installments for the duration of the loan term.
How Long Does It Take to Get a Home Equity Loan?
Below is an idea of the timelines to expect when applying for a home equity loan.
General Timeline Overview
Most lenders fund home equity loans within two to eight weeks. The funding process involves several steps, some of which could take a bit longer than others. Submitting the application doesn’t take much time if you have the necessary documentation handy. However, the file still has to go through the underwriting process, and the lender must await the results of the home appraisal to issue the final stamp of approval and close the loan.
Differences Between Banks, Credit Unions and Online Lenders
You can get a home equity loan from a bank, credit union or online lender. Some financial institutions are known to feature faster processing times than others, which is worth keeping in mind if you have a pressing financial need to tap into your home equity fast.
Banks often have the most stringent lending guidelines, so it could be 30 to 45 days before the loan closes. Credit unions feature more personalized service, but their funding timelines are similar to that of banks.
Online lenders can sometimes approve home equity loans more quickly than banks and credit unions. They offer streamlined application processing times that could get you to the finish line in as soon as 10 to 20 days.
Faster Options and Expedited Processes
Some lenders extend the option to expedite the lending process in exchange for a fee. If you choose this route, you could receive loan approval in as little as one week. Or you could get pre-qualified and gather the documents you’ll need before you plan to formally apply to help expedite the process free of charge.
Importance of Understanding the Timeline
The planning process becomes much simpler when you have an idea of the funding time for home equity loans. If you have particular expenditures you’ll cover with the money, you can plan accordingly and make adjustments if needed.
Factors Influencing the Timeline
Here’s a closer look at the specific factors that play a role in the funding timeline for home equity loans.
Type of Lender
As previously mentioned, the type of lender you select influences the waiting period for loan proceeds. Banks and credit unions tend to be a bit slower than online lenders.
Borrower’s Financial Situation
Your financial health could also cause hiccups in the process, particularly if there are concerns about your employment history, debt-to-income (DTI) ratio and reserves. You may have to provide additional information for further scrutiny to receive a lending decision, which could also delay the lending process.
Property Appraisal Process
Lenders require a professional home appraisal to determine your home’s fair market value. If there’s an increased demand for property appraisals in your area, this phase of the lending process could take a few weeks to complete.
Credit History and Score
Your credit score shows how you’ve managed debt obligations over time. If it’s on the higher end, lenders may move forward with the process with delays, as it indicates you are a reliable borrower. But if it’s lower, the underwriting team may need additional time to determine if you’re a good credit risk.
Loan Amount and Terms
Larger loans might require more detailed assessments and increased scrutiny from the underwriting team. The specific terms, such as the interest rate and repayment period, also play a role.
The Home Equity Loan Application Process
It’s worth familiarizing yourself with the specifics of the home equity loan application process. That way, you’ll know what to expect when you apply, and the time to funding will make more sense.
Preparing Necessary Documents
Before formally applying for a home equity loan, you want to gather the documents the lender will need to process your application or funding. Gather proof of income, which generally includes recent pay stubs, tax returns, W-2 forms and bank statements. It’s also helpful to have proof of ownership and a recent mortgage statement handy to help avoid hiccups or delays.
Initial Consultation with the Lender
Consider visiting a branch or calling the lender directly to discuss your unique lending needs. They can answer any question you may have and potentially pre-qualify you for a home equity loan (if this option is available) so you’ll have an idea of what to expect if you decide to move forward.
Formal Application Submission
The next step is formally applying for a home equity loan and submitting the required documents. Before submitting the application, be sure to check it in its entirety to confirm its accuracy.
Processing and Underwriting
Before the lender issues a final loan approval, your file must go through underwriting. During this phase, the underwriter will review your credit score, debt-to-income (DTI) ratio, home value and LTV to determine your eligibility for a loan.
It’s not uncommon to receive requests for additional information during the underwriting phase. Be sure to provide what’s needed promptly to keep things moving smoothly.
Property Appraisal
Most lenders require a property appraisal to determine the current market value of your home. The lender will arrange for a professional appraiser to visit your home, inspect it and provide a report that includes the fair market value of the property.
Approval and Closing Process
If you’re approved for a home equity loan, you’ll receive a clearance to close. It involves signing the final loan documents and paying any required closing costs. Be sure to read the fine print and address any questions or concerns you may have before signing on the dotted line.
Tips for Speeding Up the Process
Getting approved for a home equity loan and receiving funding doesn’t happen overnight. That said, there are actions you can take to help speed up the process.
Gathering Documents in Advance
As previously mentioned, gathering the documents you’ll need before applying can shorten the approval time. Ask the lender before formally applying what’s needed to avoid scrambling to gather documents later.
Improving Your Credit Score
A higher credit score can also help speed up the loan process. Be sure to check yours before applying and review your credit report to confirm it’s free of errors or outdated information. If not, file disputes promptly to have the issues resolved. Also, if time permits, work towards improving your credit score before applying for a home equity loan.
Promptly Responding to Lender Requests
Again, quick responses to your lender’s requests can prevent delays. Lenders might ask for additional documents or clarification on certain points. Check your email and voicemail regularly and respond right away.
Common Delays and How to Avoid Them
Here are some common reasons why borrowers face hiccups in the processing of their home equity loan applications.
Incomplete or Inaccurate Applications
Review the loan application in its entirety before submitting it. If there are issues once the lender receives it, you could be denied a loan.
Delays in Property Appraisals
These delays can occur due to high demand for appraisers or scheduling conflicts. To minimize delays, be prepared for the scheduled appraisal as soon as possible.
Issues with Credit Reports
As previously mentioned, errors or unresolved issues can lead to more questions and slow down loan approval. Before applying for a loan, regularly review your credit report. Correct any errors and resolve outstanding debts. If possible, rectify these issues at least a few months in advance.
Scheduling Conflicts
It is important to coordinate availability for meetings, appraisals and document signings. Communicate early and often with your lender to arrange convenient times that work for both parties.
