Over time, you build equity in your house, which allows you to apply for a home equity loan or home equity line of credit (HELOC). Whether you will pay for renovations, student loans, or something completely different, an equity loan is a great way for you to have access to money, without having to drain your savings account. In this article, we'll explore all the nitty gritty that goes into the process, from its length to what the process entails.
The Home Equity Loan Process
We've included an outline of the process for anyone wondering however, again, for the specific details it is best to consult your lender directly.
Check Qualifications The first step includes checking your eligibility for the loan. On average, the requirements include:
A minimum of 15-20% equity in the property (this means you've paid at least 15-20% of your mortgage)
Providing evidence of steady employment, and therefore evidence of a consistent income (through pay stubs and/or tax records)
A debt-to-income ratio below 50% (however, ideally below 43%)
FICO score above 620 (although some lenders may allow it to be lower)
Choosing a Lender This is the most obvious step, but also may be the most difficult one. You should expect this step to take a few weeks at least you should not only compare your options but also expect that the reply time from some lenders may take up to a few weeks.
Submitting an Application After you've successfully chosen your lender, you can begin by submitting your application for a home equity loan. This is likely to be the most draining part of the process, just because of the sheer amount of paperwork. You will be expected to provide several documents proving your eligibility and answer questions about your property, income, and debt. In case you're worried about missing certain documents, there's no need to stress it's just crucial for you to talk to your lender. They're often incredibly helpful and can help you figure out how to obtain the missing documents again, or aid you in filing with local governments to find property records.
Property Evaluation In some cases, you might need an official property evaluation and inspection by a certified appraiser, but this step varies depending on the lender.
Underwriting Once the property evaluation is completed, in case it was required, an underwriter will be comparing your financial profile to the home equity loan requirements, by examining your creditworthiness and borrowing history. This is the step that will officiallygetyou approved for a home equity loan. This is also likely to be one of the longest steps of the process, as it may take up to a month so do not forget to have a little patience with the lenders here!
Closing Closing is the final step, and it includes a meeting with the lender and any other essential parties to finalize the loan, sign your paperwork, and arrange for the disbursement of funds. Depending on your time availability, this step is not likely to take more than a week.
How Long Does the Process Take?
Unfortunately, there is no single answer to this question if you ask various lenders, you're likely to get a different answer. The truth is that home loan equity approval can take anywhere from a week to up to two months in some cases. The average time, however, tends to be anywhere from two to six weeks, with most closings done within a month.
As mentioned already, each process is individual and therefore you need to keep in mind its flexibility. The actual length will rely on many factors, such as your home valuation and the underwriting process. Therefore, it is best to ask your lender directly, as they will have the most accurate information.
Factors which Can Impact the Timeline
As mentioned above, there are several factors that can either speed up or slow down your home equity loan application process. It is not a rare occurrence that closing dates get pushed back in order to allow for extra time to review more documents, finish the appraisal step, or even the underwriting process. As such, you have to have patience and keep in mind, that some factors may simply be out of your control. Here are the most common factors adding extra time to the home equity loan process and tips on how to avoid them:
Insufficient Documentation and Application The documents required for your application will include a copy of your property tax bill, proof of income, and current mortgage statement. Inability to access these documents within time may be the first reason for a possible delay.
Verification The verification, or in other words underwriting process, is likely to take the longest time. This is because it requires a detailed review of all financial and property information. The lender will be looking not only into your credit score, but also your debt-to-income ratio, and current property debt. The only thing you may be able to do to speed up this process is to provide additional supplemental information that may speed up the process, however of course, only if you have any.
Home Evaluation This is the step where the appraisal verifies the value of your home. The event is likely to be scheduled by your lender depending on how busy the appraisal is, and therefore you have a little influence over the decision and the process may take more time than initially planned.
Closing Meeting with a notary and your lender to sign and deliver all final documents may also prove to be a little more hassle than expected. This mostly depends on whether your state requires a lawyer to be present for the meeting. If it does, it may prove to be even more difficult to schedule a meeting of all 3 (and you of course), than just your lender and notary.
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