Home equity loans are also known as second mortgages, and they can be a helpful way to receive extra cash for other important purchases, such as home improvements and tuition payments, while using the equity of your home. Our article gives you more essential information on what home equity loans are exactly and how long it takes to receive financing after receiving one of these loans.
Understanding Home Equity Loans
Home equity loans utilize the equity that is built up between your loan balance and the current value of your property. This equity is used as collateral for your home equity loan, and it allows you to access the equity of your property without selling your home or refinancing. Because your home is used as collateral in the loan, the lender can foreclose on your home if you default on the loan or otherwise stop making payments.
When you initially receive your home equity loan, you will be given a lump sum of the money you are borrowing, and you will need to repay this amount with interest included over the time of the loan terms. The lender will factor in several items when deciding how much you can borrow by looking at your income, your credit history or background check (which you can view yourself here), the equity accumulated on your home, and the current value of your home.
After you apply for a home equity loan, there is a specific process that needs to be followed before the loan is closed and you receive your cash. Depending on a number of factors, this process may take a few weeks or several months.
The Process for Obtaining a Home Equity Loan
It’s important to understand the general process for obtaining a home equity loan so that you know what you are going into when you consider utilizing this type of loan. Being informed about the process helps you to avoid mistakes or misunderstandings.
- Choose a lender – compare deals from multiple lenders, and don’t forget to see what your current lender may be offering.
- Apply for your home equity loan – you will need to submit documents regarding your property, answer questions about your income, and provide information about your debt and home.
- Complete an appraisal – not every lender will require this, but if your lender does, they will typically arrange an appraisal with an unbiased appraiser. Keep in mind you may be paying for the appraisal costs at closing.
- Underwriting – after you submit your application and supporting documents, in addition to the appraisal report if one is required, an underwriter will receive your application and decide whether or not the application will be approved or denied.
- Closing on your loan – if your loan application is approved, you will meet with the lender, a notary, and an attorney (this may or may not be required) to sign the loan documents. After signing, you will typically have a grace period to change your mind, but when that period ends and you’ve kept the loan, you will receive the money from your home equity loan.
Because there are many different factors that contribute to a home equity loan, you may receive your money within a few weeks, or it may take months for this process to be completed. Everything depends on your lender, your application, the underwriter, and your specific situation.
Factors That Affect Your Home Equity Loan Timeline
Several factors may influence your home equity loan timeline and speed up or slow down the process of you receiving your money from this loan.
- Your preparation – you will need to provide plenty of information about your property and supporting documents such as your current mortgage information and proof of income. The longer it takes to gather and submit these items with your application, the longer your home equity loan timeline might be.
- Underwriting – the underwriting process is typically the longest part of obtaining a home equity loan, as the underwriter will need to review credit scores and your application, and they may need to obtain supplement information from you, extending the process.
- Appraisal timing – if an appraisal is required, your lender will arrange an unbiased appraisal to ensure your home’s value is correct and to determine the final loan amount. Depending on your location and the appraiser, you may wait a while for a slot on the appraiser’s schedule.
- Closing – multiple individuals may need to be present for the closing of a home equity loan, including the lender, a notary, and an attorney. Depending on the schedules of each person, you may have time added as a suitable closing date for your loan is determined.
How Long Will It Take To Receive a Home Equity Loan?
In general, it will take between two weeks and a few months for you to receive your money from a home equity loan. Review the factors that might affect this timeline above and speak with your lender if you have concerns about the timeline of your home equity loan.
How Long Does It Take To Repay a Home Equity Loan?
Repayment periods for home equity loans vary based on the lender, your application, and other factors specific to your situation. When finalizing the loan, make sure to double-check the agreed-upon repayment period and applicable interest rates so you don’t miss a payment or fall into penalty with your loan. Most home equity loans have a repayment period that ranges from 5 years to 30 years.
Successful Financing for Your Needs
When it comes to securing financing, a home equity loan might be a smart financial move. However, it’s important that you understand everything about home equity loans, what you can do with this loan, and any applicable repayment plans or interest rates so you can be sure you are making the best financial choices for your personal situation.