If you’re looking to use the equity in your home through a home equity loan or HELOC, you probably want to get the money fast. Whether you’re doing a home remodel, paying for a college education, or using the money for something else, you don’t want to wait around.
In some case, getting a home equity loan can happen quickly. Adam Carroll, a homeowner we spoke to who is also the Founder of National Financial Educators, liked the idea of a HELOC because of the availability to access funds to do projects around his house. He found it easy to apply for a loan and get it approved within a short amount of time. “It was super easy,” he said. “It was a simple application process and they did a drive-by appraisal to determine the value of our home.”
However, it’s not true that everyone can get a home equity loan or HELOC as quickly as Adam did. The approval process can take anywhere from 2-6 weeks or even longer, depending on your situation. See below for factors that affect your timeline.
What Can Affect Approval Time
Getting a home equity loan approved is dependent on your home’s value and how much equity you have. Moreover, your financial situation will also be taken into consideration, including your credit history. This could mean the difference between getting a fast approval or a delayed approval – or even getting rejected outright.
If your credit score is high, you may be approved much quicker than someone who has a fair to low credit score. In those cases, additional documentation may be needed to determine if you’re eligible for a loan or how much you can borrow.
After the initial application process which can take as little as a few minutes if completed online, an underwriter will review your profile and see how it compares to their loan requirements.
It is usually the verification process that causes most delays to your home equity loan approval. Verifying your financial situation, gathering required documents as well as completing an evaluation of your property are all factors that need to be taken into consideration for your loan.
“The biggest factor in length of time it takes to get approved for a HELOC is how quickly you respond to the underwriter’s requests for additional documentation,” says Lee Huffman, an expert we spoke to who is VP of Finance at City National Bank. “After the housing collapse, banks are extremely cautious and want a lot of paperwork to support income, assets, and debts. This means that you need to be proactive and responsive in gathering relevant information.”
As for the type of documentation you need to provide, it varies depending on your situation. However, most financial institutions will ask for the following:
Proof of Income
Documents such as paystubs, W-2s, tax returns, bank statements, investment & retirement account statements can help to prove to the lenders that you are able to pay back the loan. If you have additional income sources, such as Social Security or rental income, those need to be included as well.
If you are self employed, you may need more proof of income. This includes business and personal tax returns from the previous two years. You may want to include profit and loss balance sheets and any additional documentation.
Proof of Debt Payments
Lenders not only look at your credit history, but how much you owe to others. Lenders will all up the total monthly payment for your property alongside any other outstanding debt. This can include credit card bills, student loans, child support and even installment loans.
The total debt is then divided by your gross monthly income, including your salary, investments and other forms of applicable income. That means the more complicated your situation (i.e. you have lots of documentation to provide to your lender), the longer it may take them to determine a suitable amount of money to loan you.
Property Ownership Documents
Your lender may need these types of documents to determine how much equity you have on your home. This includes property tax assessments, your mortgage statements, and even a copy of the recorded deed on the property.
Getting a Valuation of Your Property
Before you can access funds from your HELOC loan, the lender needs to determine the value of your property to determine how much you can borrow.
The good news is that with many home equity loans, a full appraisal is not required. Many companies will look through public records to see the value of your property, or simply drive by your home like in Adam Carroll’s case. Assuming the records are accurate, this part of the process can be fairly quick.
Once You’re Approved
When all required documentation is verified and your loan is approved, you’ll need to meet with the lender to finalize the transaction. Officially closing the loan could differ depending on where you live. For example, the state of Texas requires that lenders cannot close a loan until at least twelve days after the borrower applies for a HELOC and receives a formal notice of their legal rights.
Even if your loan is closed quickly, the law states that you have three days to cancel your loan without any penalty. That means that the lender typically will not disburse the funds until the fourth business day after your loan has closed.
Faster Alternatives to HELOCs and Loans
If you need access to cash faster than a typical home equity loan, you may want to consider alternatives. For example, a home ownership investment from Unison can help you unlock the equity in your home without a loan. Since this is not a loan, the application and verification process can go much more quickly.
With the Unison HomeOwner program, there are no monthly payments and no interest charges. Instead, the company invests alongside you in your home, sharing a portion of any future change in value when you sell the home – up to 30 years later.