Home equity loans and home equity lines of credit (HELOCs) are both ways to obtain cash while borrowing against the value of your home. While HELOCs open up a line of credit for ongoing use, home equity loans offer a lump sum of cash — and tend to be approved more quickly.
How long does it take for approval on a home equity loan?
It can take anywhere from 3 to 31 days for a lender to process and approve your application for a home equity loan. But keep in mind that the exact amount of time it takes varies depending on the lender, your financial situation and how quickly you can get the paperwork together.
What affects my approval time?
Several factors can affect the time it takes for you to receive your funds, including:
The application. Most applications require a copy of your current mortgage statement, property tax bill and proof of income. Keep these documents handy throughout the process.
Verification. The lender takes time to verify the information you’ve provided, including your source of income and personal details. It’ll also probably check out:
Your debt-to income ratio. Ideally should be lower than 43% to ensure you’ll be able to pay back the loan without hardship.
Property debt. A lender will likely run a title search to check for existing debt on the property.
Home evaluation. You’ll need an appraisal to verify what your home is currently worth. The lender will typically assist with this.
Closing. You’ll need to meet with a lawyer in order to sign, seal and deliver the documents.
Can my credit score affect timing?
A low credit score could slow down the underwriting process, which is when lenders determine whether or not you’re eligible for a loan. If your credit score is lower than 650 – which is typically considered the point between a “fair” and a “good” credit rating – it could signal that a more in-depth review of your financial history is required. A credit score lower than 600 may outright exclude you from being approved – a sign that you’re a risky borrower.
What documentation will I need?
Staying organized throughout the process will help speed things up. Documentation you might need to provide includes:
Copy of valid ID
Copy of the property’s title deed
Three months worth of paycheques
Tax returns from the last two years
Mortgage statement
Copy of property tax bill
How soon after approval can I receive funding?
Exactly how long it’ll take to get your money after approval depends on the lender. However, typical turnaround time for the cash to hit your account is about three to five business days.
Bottom line
Getting a home equity loan can take anywhere from one to four weeks, depending on a number of factors. And since your home is on the line as collateral, the process shouldn’t be rushed. Take some time to learn all you need to know about home equity loans and understand how they are different from home equity lines of credit (HELOCs). Compare different lenders in order to find the best loan for your needs.
Frequently asked questions
No, the interest on a home equity loan, much like interest on a mortgage, is not tax deductible.
A home equity loan can be a good way to access cash for a major expense. Benefits include:
Long repayment terms. Most home equity loans have a repayment period of five to 10 years.
Lower rates. Depending on your financial situation, the APR can be lower for home equity loans than other types of loans.
Fixed-rate. Home equity loans usually come with fixed interest rates – so you can budget accordingly.
Lump sum. You get access to a lump sum of cash and will need to budget in your monthly repayments. A lump sum ensures you won’t spend more than you need – a risk you take on when you have access to a line of credit.
A home equity loan is a lump sum payment into your bank account, where you can borrow up to 80% of the value of your home.
A home equity line of credit (HELOC) is a revolving line of credit that allows you to access the money whenever you need it (up to your credit limit). You can typically borrow up to 65% of the value of your home – but, any outstanding mortgage balance plus your HELOC cannot equal more than 80% of your homes value.
Yes, usually. While they vary between lenders, closing costs usually sit between 2% to 5%. These fees help cover any lawyer fees and the costs associated with filing, preparing and evaluating your loan and home.
If your loan is for $75,000, for example, you could end up paying $1,500 to $3,750 in closing costs.
Amy Stoltenberg managed newsletters at Finder, gathering the best articles each week to help subscribers save money and stretch their hard-earned dollars. She also handles the Twitter account, dabbling in Instagram and Facebook too. When she's not on the computer, you can find her exploring Los Angeles with a good book in tow. She studied writing at Savannah College of Art and Design and has been featured on the Zoe Report. See full bio
Amy's expertise
Amy has written 3 Finder guides across topics including:
Emma Balmforth is a producer at Finder. She is passionate about helping people make financial decisions that will benefit them now and in the future. She has written for a variety of publications including World Nomads, Trek Effect and Uncharted. Emma has a degree in Business and Psychology from the University of Waterloo. She enjoys backpacking, reading and taking long hikes and road trips with her adventurous dog. See full bio
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