If you need a lot of cash for a large expense and own your home, you may consider borrowing some of your equity. One option is to get a home equity loan, which is a second mortgage that may allow you to borrow a portion of your equity at a fixed rate. Home equity loan rates are typically much lower than credit cards and personal loans, so they are a wise choice for homeowners who want low-interest cash.
For someone who needs cash quickly, it’s common to ask how long it takes to get a home equity loan. Below is everything you need to know about the typical home equity loan timeline, plus plenty more helpful loan information. Do you want to apply for a home equity loan today? Smart Lending can help you find the top ranked home equity lenders online at with no application fee.
How Long Does a Home Equity Loan Take to Close?
The home equity loan process can take anywhere from a few weeks to a few months. Several factors influence this timeline, some within your control and some not. Being well-prepared can help speed things up. Your credit report, appraisal and income documentation are usually the three most important factors, because the underwriter is looking for a specific credit score, loan to value and debt to income ratio. Your potential lender will want to see copies of your current mortgage statement, property tax bill, and promissory note for your first mortgage.
Timeline to Get a Home Equity Loan
As far as how long does it takes to get a home equity loan, it generally takes two weeks to two months, depending on the situation. Having your documents prepared, such as tax returns, bank statements, and paystubs, will ensure that your loan officer has everything they need to underwrite the loan. If the underwriter needs to ask for additional information from you, completing the loan could take longer.
Also, your financial and credit situation will influence how long it takes to get a home equity loan. People with average or below average credit may have a longer home equity loan process. The process also can take longer if you have a lower income or a higher debt-to-income ratio. Furthermore, the timeline for your loan can vary based on how long it takes to get an appraisal and when the process is completed by the appraiser.
The good news is that home equity loans usually take less time to approve than first mortgages. the participating mortgage brokers and lenders working with Smart Lending can help you get started today on qualifying for a home equity loan.
Current Home Equity Loan Rates
As of 2024, interest rates are still higher than a few years ago. The Federal Reserve recently decided to keep rates level for now as inflation still needs to be brought under control.
Even with higher rates, a home equity loan as of May 2024 is still a good deal. The average rate in the US for a home equity loan is 8.6%, with a range between 6.5% and 10.3%. Rates on home equity loans are heavily based on the current prime rate. Your income, debts, credit score, and amount borrowed are also relevant factors. If you do not mind a variable rate want to set up a credit lines, shop for the best HELOC rates today online.
Home Equity Loan Requirements
Every second mortgage lender has various standards for home equity loans. Generally, applicants for a fixed equity loan need 15% to 20% available home equity, at least a 620 or higher credit score, and a debt-to-income ratio of no more than 50%, but 43% is better. Also, you should have proof of a steady income for the last several years.
You also will likely need a new appraisal of your home’s value. This action will confirm what the home is worth and the percentage of equity you have.
Home Equity Loan Process
If you are ready to apply for a home equity loan, here are the basic steps:
• Determine the amount of money you want to borrow. Think about the amount of loan you need and are willing to pay every month. Keep in mind that you are borrowing your equity, so it will not be available to you when the home is eventually sold. You will also need to pay closing costs, which will reduce the amount you get. The best path is to borrow just enough to cover your needs.
• Determine your credit status. Your credit score is a large factor in being approved and your interest rate. Review your credit profile and determine if you need to make improvements. If your score is not at least 640, you will probably need to work on your credit to improve your rate.
• Shop for a 2nd mortgage. Home equity loans can have different rates. It’s smart to get quotes from several lenders to compare fees and rates. RefiGuide.org can help you compare several different home equity loan options, based on your credit and financial profile. Make sure you let the loan officer know if you are looking for a home equity loan to buy another house or simply a 2nd mortgage against your primary residence.
• Apply for a home equity loan: Now you can apply for a home equity loan with your lender of choice. Documentation requirements for home equity loans are usually a few months of bank statements, two years of tax returns, and one or two months of paystubs.
• Go through underwriting. The mortgage lender will go over your application and determine if you can be approved. They will contact you if more information is needed. Make sure you respond promptly to any additional information requests so the loan can close faster. You can expect the typical approval process to range between two weeks and two months.
• Get your home equity loan funded. The last step is to receive your equity loan proceeds in your bank account.
Remember, you cannot borrow 100% of the equity in your home. If you have $200,000 of available equity, lenders will want you to keep at least 10% or 20% in the home. This is to prevent borrowers from taking out 100% of the available equity and then stop paying the loan. You will need at least 10% or 20% equity in the home to qualify for home equity loans.
5 Tips to Make the Home Equity Loan Application Process Quick and Easy
A home equity loan can be a smart way to tap into the value of your home for major expenses, home renovations, or debt consolidation. However, the application process can sometimes feel lengthy and complex. Here are five tips to help you streamline the process and make applying for a home equity loan quick and easy.
1. Check Your Credit Score and Improve it if Necessary
One of the key factors lenders review when evaluating your home equity loan application is your credit score. A strong credit score can increase your chances of approval and help you secure a lower interest rate. Generally, a credit score of 620 or higher is preferred for home equity loans, although some lenders may have more flexible criteria.
Before applying, take a moment to check your credit score from one of the major reporting bureaus (Equifax, Experian, or TransUnion). If you find any inaccuracies, report them immediately to have them corrected. Additionally, consider improving your score by paying down high balances, catching up on any late payments, and limiting new credit inquiries. These small steps can boost your score, helping you get approved more quickly and potentially saving you money on interest over the life of the loan.
2. Organize Your Financial Documents Ahead of Time
Gathering and organizing necessary financial documents in advance can make a significant difference in speeding up the application process. Lenders typically require documents that verify your income, employment, debts, and assets, so having these on hand will prevent delays.
Start by compiling recent pay stubs, W-2 forms, tax returns, and statements for any outstanding loans or debts. If you’re self-employed, you’ll likely need to provide additional documents, such as profit-and-loss statements and bank statements. Having these documents readily available allows you to respond quickly to lender requests, helping your application move along without unnecessary interruptions.
3. Calculate Your Home’s Equity and Loan-to-Value Ratio (LTV)
Knowing your home’s equity and loan-to-value (LTV) ratio before applying can help you set realistic borrowing expectations. Your home equity is the difference between your home’s current market value and any existing mortgage balance. Most lenders prefer an LTV of 85% or less, meaning that the combined loan balance (your mortgage and the new home equity loan) should not exceed 85% of your home’s value.
Use recent home appraisals or an online home value estimator to get an approximate value of your property. Subtract your remaining mortgage balance from this value to find your equity. Having a clear understanding of your equity and LTV ratio can help you determine how much you’re eligible to borrow, simplifying discussions with your lender and avoiding potential delays.
4. Compare Lenders and Choose the Right One
Not all lenders offer the same terms, fees, or interest rates on home equity loans. Take time to compare options from different banks, credit unions, and online lenders to find the one that best suits your needs. Request quotes and look at factors such as interest rates, closing costs, prepayment penalties, and any other fees that could affect the total cost of your loan.
Choosing the right lender can expedite the application process as well. Look for lenders with good customer reviews and a reputation for a fast, responsive loan process. Some lenders may even have an online application option, which can significantly cut down on paperwork and wait times.
5. Know How Much You Want to Borrow and Be Clear About Your Loan Purpose
Having a clear loan amount and purpose ready when applying can help streamline the process, as lenders often inquire about the specifics of how you intend to use the funds. For example, are you planning a major home renovation, consolidating high-interest debt, or covering a large one-time expense?
Knowing the exact amount you need and being able to communicate it to your lender allows them to assess your application more effectively. Additionally, some lenders have specific programs or rate incentives based on loan purpose, so clarity can help them recommend the best loan option for your situation. Setting a precise loan amount also keeps your application focused, helping you avoid unnecessary back-and-forth with the lender.
Frequently Asked Questions
What Is a Home Equity Loan?
A home equity loan is a second mortgage that allows the homeowner to borrow some of the equity in their home. The amount of equity in the home is dictated by the difference between the home’s value and the remainder of the mortgage. Home equity loans are secured by your home, so you can lose it if the loan isn’t paid on time.
If you want to calculate the amount of equity in your house, estimate the value of the home, and subtract the remaining mortgage. That is the equity you have in the house.
For example, if the house is valued at $300,000 and you have $100,000 left on the mortgage, your equity is $200,000. Most lenders allow you to borrow 80% or 85% of your available equity. So, in this example, you could potentially borrow approximately $160,000 with an equity home loan, if you want.
A home equity loan is a fixed-rate loan with a fixed payment schedule. You will know exactly what you pay every month and when the loan will be paid off. This loan differs from a home equity line of credit (HELOC), which is a line of credit based on the home’s equity. It is a variable rate loan with a five- or 10-year draw period. You pay interest only on a HELOC during the draw period, and interest and principal when the draw period is over.
How to Speed up the Home Equity Loan Process
If you need funds quickly, consider these strategies to expedite the loan process:
- Gather Documents Early: Have your financial paperwork ready before applying.
- Choose a Lender with Fast Processing: Look for lenders known for quick turnaround times.
- Consider an Automated Appraisal: Some lenders offer desktop appraisals, which can be faster than traditional ones.
- Respond Promptly to Requests: Timely responses to lender inquiries can help avoid delays.
Home Equity Loans or HELOCs?
Many financially conservative homeowners choose a home equity loan because it has a fixed rate and term. The equity loan ensures a fixed interest rate, a fixed monthly payment and a lump sum when the loan closes. HELOC rates can vary, and while this can be helpful in a low-rate environment, the payment can always go up, too.
An equity loan may be appropriate for someone who wants a lump sum of cash at once. For example, if you need to pay a $50,000 student loan at once, you could choose a home equity loan. But if you plan to renovate your home and need $50,000 over two years, a HELOC might be better. With a HELOC, you only pay interest on the money drawn from the line of credit; you pay interest on the full amount with a equity home loan.
Also, a HELOC can be reused over and over. Once you pay back the HELOC, you can take out more money. Can You Refinance a HELOC with another HELOC? With a home equity loan, you need to pay off the loan in full, and it cannot be reused.
How Long Does It Take to Get a 2nd Mortgage Loan?
If everything is perfect, you may be able to close on your home equity loan within a couple of weeks. However, this is extremely rare, as lenders are often relying on 3rd-party companies, like appraisers and title companies. It is not uncommon for the process to take up 6 to 8 weeks. Some factors, such as the timing of the appraisal and the underwriting process, are beyond your control. Timelines for these steps can vary widely depending on the appraiser and the home equity lender.
Is it hard to qualify for a home equity loan?
Home equity loan requirements can vary by lender, but having strong credit and a low debt-to-income ratio can significantly increase your chances of approval.
Do I need an appraisal for a home equity loan?
Most mortgage lenders will require an appraisal to approve an equity loan or line of credit. This requirement primarily relates to risk management, as the higher the loan to value is the higher the risk. Consequently, the lower the loan to value is the less of the risk. (amount of home equity you have available) If you default on the equity loan or HELOC , the lender needs to ensure they can recoup their investment through a sale.
Can I use an equity loan for debt consolidation?
Yes, many borrowers take out home equity loans to pay off debt and variable rate loans in an effort to achieve a lower monthly payment. We strongly recommend that you consider a fixed interest rate loan to consolidate high interest debt.
Summary on How Long It Takes to Get a Home Equity Loan
A home equity loan can be useful if you need a loan for home repairs, credit card bills, or college tuition. You can bet on it taking at least a few weeks to get a home equity loan and be prepared for the process to take up to two months. This type of second mortgage is often a great fit for financially conservative borrowers who want a fixed-rate loan between 6.5% and 10.7% (as of May 2024). You can get started on the home equity loan application process today by contacting Smart Lending.
Home Equity Loans in the News
The Federal Reserve May Lower Rates Slightly. In its June Summary of Economic Projections, the Fed indicated it would likely reduce rates by about 0.25% this year. The experts we consulted agree that this is probably where the Fed will end up by year’s end.
Kelly Miskunas, Sr. Director of Capital Markets, stated, “The Federal Reserve has made it clear that it needs to see more data supporting an inflation trend towards its long-term goal of 2% before making any meaningful changes to monetary policy.”
The CME Group Fed Watch tool shows the possibility of further rate cuts this year, but the numbers change often. If inflation drops faster than it has in recent months, there’s a chance those extra cuts could occur. The Fed meets next at the end of July.
References
Bankrate. (2023). How long does it take to get a home equity loan?
RefiGuide (2023). What documents are needed for a home equity loan?
Consumer Financial Protection Bureau (CFPB). (2023). What to know about home equity loans and HELOCs.
