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

What are home equity loans used for?

Home equity loans are versatile and can be used for a variety of financial needs. Common uses include:

• Home improvements: Invest in significant renovations that can increase your home’s value.
• Debt consolidation: Combine multiple debts into a single payment, potentially lowering your overall interest rate and making payments more manageable.
• Major expenses: Cover costs like college tuition, medical bills, or other large expenses with the predictable repayment terms of a home equity loan.
• Key purchase or investment: The money can be used to buy a car or RV, pay for a wedding or vacation, start a business, or fund an investment.

How long does it take to get a home equity loan?

The timeline for obtaining a home equity loan can vary, typically ranging from two to six weeks. This speed of the process depends on several factors, including the lender’s efficiency, the completeness of your application, and how quickly you can supply necessary documents.

Here’s a rough breakdown of what happens during this time:

1. Application and documentation: You’ll start by submitting a loan application along with required financial documents, which might include recent pay stubs, tax returns, and proof of homeownership.
2. Appraisal and valuation: Most lenders require an appraisal to determine your home’s current market value, which affects the amount you can borrow.
3. Underwriting and approval: Your application will go through an underwriting process where lenders assess your financial details and the appraisal report.
4. Closing: Once approved, you’ll sign the final documents, and the loan will close, releasing the funds to you.

What’s required to get a home equity loan?

Securing a home equity loan requires meeting specific lender criteria to ensure you have sufficient equity and can repay the loan. Key requirements include:

• Percentage of equity in your home: Typically, you need at least 15%–20% equity in your home to qualify.
• Credit score: A higher credit score can improve your chances of approval and secure better interest rates. Most lenders look for scores above 620.
• Debt-to-income ratio (DTI): Lenders usually require a DTI ratio below 50%, with a preferred target of below 43%. This ratio helps lenders evaluate if you can handle additional debt.
• Income history: A steady income history reassures lenders that you have the means to meet monthly payments.
• Home appraisal: An appraisal is usually necessary to confirm your home’s current value and the equity available for borrowing. However, some lenders may offer options that don’t involve a full appraisal.

How much does a home equity loan cost?

The cost of a home equity loan is not just about the interest you pay but also includes closing cost fees, which generally range from 2% to 6% of the loan amount.

For example, if you take out a home equity loan of $75,000, you can expect to pay between $1,500 and $4,500 in closing costs. Here is a list of the fees that can be included in your closing costs:

• Origination fee
• Credit report fee
• Appraisal fee
• Document preparation fee
• Title search fee
• Title insurance policy
• Notary fee
• Attorney fee (in states where required)

You’ll also want to check your loan agreement for additional costs, such as annual fees for maintaining the loan or early repayment penalties that some lenders charge to offset their loss of expected interest income.

Example home equity loan payments

Source: U.S. Bank home equity loan calculator (As of May 2024 with a 730 credit score)

When choosing which term length is best for you, consider your monthly budget. As you can see in the table above, a shorter-term loan can have a lower interest rate. The rate you pay will depend on your credit score, loan length, and the lender. It’s wise to shop around and compare interest rates.

Start Making Offers Without Waiting to Sell Your Home

Through our Buy Before You Sell program, HomeLight can help you unlock a portion of your equity upfront to put toward your next home. You can then make a strong offer on your next home with no home sale contingency.

Buy Before You Sell

Are there drawbacks to home equity loans?

While home equity loans can provide significant financial resources, they come with some potential drawbacks:

• Fixed loan amount: Unlike a HELOC, a home equity loan offers a lump sum, which means you can’t borrow additional funds without a new loan.
• Closing costs and fees: Home equity loans often involve closing costs and fees, which can add up to 2%-6% of the loan amount.
• Impact on future finances: Taking out a home equity loan reduces the equity you have in your home, which could impact your financial flexibility in the future.
• Risk of foreclosure: Since your home serves as collateral, failure to make payments can lead to foreclosure.

Alternatives to home equity loans

If a home equity loan doesn’t fit your financial goals or if you’re looking for different borrowing options, consider these alternatives:

• Home equity line of credit (HELOC): Unlike a home equity loan, a HELOC offers a revolving credit line to borrow from as needed, with variable interest rates.
• Personal loans: If you prefer not to use your home as collateral, a personal loan might be a suitable option. These loans often come with higher interest rates but less risk of losing your home.
• Cash-out refinance: This involves refinancing your current mortgage for more than you owe and taking the difference in cash. It can be a good choice if you can secure a lower interest rate than what you currently have.
• Credit cards: For smaller or short-term financing needs, credit cards could be a feasible alternative, especially if you can take advantage of promotional zero-interest offers.
• Retirement plan loan: Some retirement plans, such as a 401 (k), allow you to borrow from your retirement savings. The loan amount may be limited to a percentage of your vested balance or a capped amount.
• Government loans: Some government programs can provide financial assistance for home repairs and improvements, potentially offering more favorable terms than traditional home equity loans.

How to unlock home equity to buy before you sell

If you are a homeowner considering equity financing to purchase a new home in order to sidestep the buy-sell timing conundrum, there is a modern way to buy before you sell.

HomeLight’s Buy Before Your Sell program makes it easy to use the equity from your current home to make a strong, less contingent offer on a new home. Our innovative program, with its near-instant Equity Unlock Calculator, lets you streamline and simplify the entire buying and selling process.

Here’s how HomeLight Buy Before You Sell works:

If your home qualifies, you can get your equity unlock amount approved in 24 hours or less. No cost or commitment is required. Once approved, you can buy your next home with confidence and then sell your current home with peace of mind.

»Learn more: How to ‘Buy Before You Sell’ with HomeLight

Is a home equity loan right for me?

Determining whether a home equity loan is right for you depends on your financial situation. The key is to consider the costs involved, your long-term financial plans, and how comfortably you can manage the additional debt without risking your home.

If you’re considering a home equity loan to purchase a second property, HomeLight can connect you with a top real estate agent in your market who can provide expert guidance and insights.

If you’re a homeowner looking to leverage your home’s equity to avoid the risks of selling under pressure, HomeLight’s Buy Before You Sell program might be the right solution, offering a smooth, streamlined transition to your next home.

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