Applying for a home equity loan would be the best way to access cash for home improvements, major expenses, or college tuition. If you require the money on short notice, it is normal to wonder when you will get the cash.
There is no set time frame for receiving the cash; it depends on the lender you work with and how well they are prepared. The time it takes to schedule with an appraiser, and a closing attorney also plays a role. Keep in mind that it will work like a second mortgage.
How quickly is a home equity loan approved and obtained?
The average time frame is between two weeks and two months; as mentioned above, different factors can advance or delay the loan. Therefore, you should consider the following:
The underwriting process
The lender evaluates your credit score, DTI ratio, and other important financial details for approval. Depending on how complex your financial situation is, they may request additional information; when you need to bring more than the basic requirements, the process takes several weeks while each item is verified.
How prepared you are
The lender asks for copies of your current mortgage statement, i.e., property tax bills, for your proof of income. We recommend you have these ready when you apply.
If they have not been issued, the approval process will take longer while the lender processes the application and reviews the documents.
The lender’s responsibility will be to hire an outside appraiser to determine the home’s value. The appraisal is done to verify if the loan amount requested is necessary for the property. It is one of the most time-consuming steps because the appraisal experts usually have a busy schedule.
Depending on the state where you live, you may be required to have an attorney present at the loan closing. Again, it may delay the procedure if you need to adjust to the attorney’s schedule.
Can the home equity loan pay off a mortgage?
Home equity loans can catch up on various expenses if you can pay off a mortgage. However, it is advisable to use them only when it offers you interest and a lower monthly payment.
Before deciding to use it for that, consider the loan closing costs and penalties imposed for prepayment of your loan.
Pros and Cons of Home Equity Loans
A home equity loan is a good choice for people aware of the amount they need to complete a particular project. It is often perfect for home improvement because the interest paid is tax-deductible when used for renovations.
In addition, they are loans with very competitive interest rates, usually lower than cash-out refinances or personal loans. It is still advisable to compare lenders’ rates to get the best deal.
On the other hand, if you need the money in a short period, home equity loans may not be the best way to go. Receiving the funds usually takes longer compared to others. In addition, you may be subject to very high closing costs.
Before opting for these loans, you should make sure you can afford to pay them; one of the risks is losing your home for not paying on time.
Procedure to apply for a home equity loan
Preparing your application is essential to getting a positive response from your lender, knowing your collateral, and taking stock of the number of other debts you have outstanding.
Some lenders will allow you to start your application online by entering your personal and financial information. Essential documents are:
- Social Security number
- Employment history and employer contact information
- Child support or alimony payment amount
- Last two W-2 statements
- Proof of homeownership
- Most recent pay stub.
- Current mortgage statement
- Evidence of existing liens on your home
- Homeowner’s insurance declarations page
- The appraisal of your home
Some lenders also require you to pay a loan application, home appraisal, or credit check fee.
Payments you’ll have to make for the home equity loan
Again, depending on the lender you choose, charges for fees at closing or during the life of the loan vary from company to company. They are usually in addition to your overall costs, so it is essential to know how much you must pay before proceeding with the application.
- Late fees for a late monthly payment
- Loan origination fee
- Closing costs
- Prepayment penalty for paying off the loan before the term ends
You can also add payments such as title insurance, flood insurance, property insurance, and some taxes required by the lender. The process may be determined by the location of the home, and the laws of the state in which you live, among others.
Can you get the loan with bad credit?
It won’t be impossible, but your chances of being approved for the loan will be lower. You will need to shop around with different lenders and evaluate their terms, as each company has its requirements for bad credit.
Common requirements are to have at least 15% or 20% of the equity in your home, a minimum credit score of 620, provide timely bill history, stable income or employment history, and a maximum debt-to-income ratio of 43%.