How Long Does it Take to Get a Home Equity Loan?

Homeowners frequently consider home equity loans as a loan option to fund important needs like starting a business, building onto the house, or paying for medical procedures. Some of these are carefully planned expenditures, while others require converting home equity to cash in a short time frame. 

How long does it take to get home equity loan approval, and what can you do to speed the process? Let’s take a look. 

What Is a Home Equity Loan?

Most credit cards and personal loans are unsecured debt—if you don’t pay them off, the lender eventually swallows the loss. Mortgages and home equity loans are both secured debt, which has a major benefit to you (lower interest rates) but also comes with the risk of losing your property to foreclosure if you don’t repay the loan.

Home equity loans are usually: 

• Fixed-interest rate consumer loans
• A lump sum of money to be paid back in a set repayment period, usually five to 20 years¹
• Limited to 80% of your total equity¹

Traditional lenders look for borrowers with a: 

• Credit report with a credit score of 620 or higher¹
• Debt-to-income (DTI) ratio below 43% (or at least below 50%)
• Steady income of at least two years

The Home Equity Loan Process

Getting a home equity loan usually takes two to six weeks from application to closing, though it can take up to two months if there are complicating factors like a bad credit score.^1,2

Steps include: 

Pre-Application

Before you apply for a home equity loan, you need to do some research, comparison-shop for competitive rates, choose a lender, and prepare your application information. Whether it takes a few days or a few months depends on your schedule and organization level, even more so if you allot time to take actions that improve your credit score or DTI ratio. Learn how to lower your debt-to-income ratio with our guide. 

Application

You can apply with most lenders online, or in person or by mail at your bank or credit union of choice. You’ll be asked detailed questions about your property, income, and debt. 

Approval

You may receive an initial approval and terms from a loan officer or website interface, but a final offer isn’t complete until the loan goes through the appraisal and underwriting process. 

Not all lenders require appraisals, but most will arrange for a licensed, independent appraiser to evaluate your home’s condition, compare it to similar recent sales, and provide an official appraised value. This figure is used to calculate your current equity and set a borrowing limit to your loan (usually 80% of equity).¹

An underwriter is responsible for fact-checking and analyzing your application information and documents along with the appraisal to ultimately recommend whether to approve or deny the loan. 

Funding

The final signing of a home equity loan is similar to closing on your first mortgage—including paying closing costs (typically 2% – 5% of the total loan amount).³ After closing, you’ll have three days to cancel the loan. Once the three days are up, you’ll receive your funds, which are to be repaid in a monthly payment schedule.¹

Speeding Up the Home Equity Loan Process

Some factors you can’t control, such as whether your state requires an attorney to be present at closing or if the appraiser your lender selects has a booked-up schedule. What you can do to keep the home equity loan process moving is to: 

• Gather your property and financial documentation in advance
• Respond quickly to requests for more details or documents
• Work with your current mortgage lender

Alternatives to Home Equity Loans

Before you move forward with a home equity loan application, take a look at other ways to leverage your equity and ensure you’re making the best choice for your situation and goals. Consider: 

• Home equity line of credit (HELOC)
• Personal loan (either unsecured, or secured by property other than your home)
• Cash-out refinance 
• Second mortgage
• Sale-leaseback program, which is considered a debt-free option

The Sale-Leaseback: A Different Alternative

If you’re looking to convert more equity to cash than you can with a loan, or avoid taking on new debt, a sale-leaseback, also known as a rent-back agreement, gives you all the profit of a home sale without having to move. 

There are many sale-leaseback benefits to consider, and when you close on the sale to an investor-landlord, you’ll combine it with an agreement that guarantees: 

• Your legal right to stay in your home as long as you choose
• An agreed-upon lease amount
• A lock against rent increases for a set period
• A clear method for future rent increases that prevents unreasonable hikes

Key Takeaways

Once you submit your application, you can expect to wait two to six weeks to have cash in hand from a home equity loan—or up to two months if you have a complex or less-than-ideal financial picture, slow response from an appraiser or lender, or delaying state regulations.^1,2

Factors that help speed up the process include working with your current mortgage lender or home loan provider, submitting complete documents, and responding quickly to lender requests. 

Also, make sure you understand the annual percentage rate and other associated fees before choosing any loan option. The loan term and whether it’s a fixed rate or variable interest rate will impact your overall costs and monthly payment amount. If you’ve previously been denied a home equity loan due to bad credit, there are lenders who offer more competitive rates for those with less-than-perfect credit reports.

Before you commit, consider other options that allow you to make your equity work for you. To convert your equity while reducing instead of increasing your debt load, look into sale-leaseback programs.

This article is published for educational and informational purposes only. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process.

Sources: 

1. Investopedia. How Long Does It Take to Get a Home Equity Loan? https://www.investopedia.com/how-long-to-get-home-equity-loan-5323851
2. Finder. How long does it take to get a home equity loan? https://www.finder.com/how-long-does-it-take-to-get-a-home-equity-loan
3. Investopedia. Can I Use a Home Equity Loan To Buy Another House? https://www.investopedia.com/can-i-use-a-home-equity-loan-to-buy-another-house-5200330

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