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

What is a home equity loan?

A home equity loan is a way to borrow money by using the equity you’ve built in your home. Your equity is simply the amount of your home’s value that you own, calculated by taking your home’s current value and subtracting what you still owe on your mortgage. 

Once approved, you’ll usually receive the money as one lump sum that you can use for things like renovations, debt consolidation, or major expenses. Since most home equity loans have fixed interest rates, your monthly payments stay predictable from the first payment to the last.a

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

In most cases, getting a home equity loan takes about two weeks to three months from application to funding. If there are missing documents, appraisal delays, or other hiccups along the way, it can take a little longer. How fast everything moves depends on your lender, how quickly you submit the required paperwork, and whether the appraisal and underwriting process goes smoothly.

How to speed up the home equity loan application process

While every lender has its own timeline, there are a few ways to help speed up the application on your end. Being prepared from the start can save you from delays later in the process. Here are some easy tips to help your home equity loan application move as smoothly as possible: 

• Gather your documentation early: Before you apply, round up important documents like your W-2s, tax returns, recent pay stubs, and proof of income. Having everything ready from the start makes it easier for your lender to verify your information and keeps your application moving instead of getting held up waiting for paperwork.
• Double-check your application before submitting it: A simple typo, missing document, or incorrect income figure can slow things down while your lender asks for corrections. Spending a few extra minutes reviewing everything now can save you a lot of time later.
• Choose a lender with an easy online process: Some lenders let you upload documents, sign paperwork electronically, and track your application online. These digital tools can cut down on back-and-forth emails and paperwork, helping your loan move along a little faster.
• Respond promptly to lender requests: If your lender asks for more documents or has questions about your application, try to get back to them as soon as you can. Even a small delay in responding can slow down the approval process and push back the day you receive your funds.
• Stay available during business hours: Try to be reachable for follow-up calls or emails during the application period. Quick answers on your part help the lender keep things moving.

What’s required to get a home equity loan?

Before you apply, it’s a good idea to know what lenders will be looking for. While the exact requirements can vary, most lenders check the same key financial and property details before approving a home equity loan. Here’s what you’ll typically need to qualify.

• Percentage of equity in your home: Typically, you need at least 15% to 20% equity in your home to qualify.
• Credit score: What credit score do I need to get a home equity loan? Most lenders look for scores above 620. A higher credit score can improve your chances of approval and secure better interest rates. 
• Debt-to-income ratio (DTI): Lenders usually require a DTI ratio below 50%, with a preferred target of below 43%. This number shows how much of your income is already going toward debt payments, helping lenders decide if you can handle adding a home equity loan to the mix.
• Income history: Having a steady income helps show lenders that you have a reliable source of money to keep up with your monthly payments. The more consistent your income history is, the more confident lenders may feel about approving your loan.
• 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 costs, 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

*Interest rate from the U.S. Bank

When deciding on a loan term, think about what fits best with your monthly budget. A shorter loan term may come with a lower interest rate, but your monthly payments will usually be higher. Keep in mind that your rate depends on factors like your credit score, loan term, and lender, so it’s always a good idea to compare your options before making a decision.

Are there drawbacks to home equity loans?

Home equity loans can be a helpful way to access cash for big expenses, but they’re not the right choice for everyone. Like any type of borrowing, they come with a few downsides you need to take into account before signing on the dotted line. Let’s look at some of the potential drawbacks and what to keep in mind before taking one out:

• Fixed loan amount: Unlike a HELOC, a home equity loan gives you all the money at once. If you end up needing more cash later, you’ll usually have to apply for another loan instead of simply borrowing more from the same one.
• Extra fees: Home equity loans often come with closing costs and other fees that can increase your overall borrowing cost. These expenses can add up to around 2% to 6% of the loan amount, so it’s important to factor them in.
• Less borrowing power: When you take out a home equity loan, you’re using some of the value you’ve built in your home. That means you’ll have less equity available later if you need it for another financial goal.
• Foreclosure risk: Since your home is used as collateral, missing payments can put your property at risk. If you’re unable to keep up with the loan, you could face foreclosure.

»Learn more: Want to know how much your home could help you borrow? Try our Home Equity Calculator to estimate your equity and explore your options before making your next financial move.

What are home equity loans used for?

A home equity loan can give you access to a large chunk of cash, but what can you actually use it for? The good news is that there are plenty of ways to put those funds to use, whether you’re making improvements to your home, paying down debt, or covering a major expense. Here are some of the most common reasons homeowners take out home equity loans:

• Home improvements: Whether you’re finally remodeling the kitchen, updating an old bathroom, or tackling repairs you’ve been putting off, a home equity loan can help you pay for projects that make your home more comfortable and potentially boost its value.
• Debt consolidation: If you’re juggling multiple credit card balances or other high-interest debts, a home equity loan can help you roll them into one monthly payment. Since home equity loans often come with lower interest rates than some other types of debt, this could make your payments easier to manage and help you save on interest.
• Major expenses: Large life expenses can catch you off guard, from college tuition to medical bills and everything in between. A home equity loan gives you a lump sum of cash upfront, along with predictable monthly payments that make it easier to plan your budget.
• Key purchase or investment: A home equity loan doesn’t have to be used only for your home. Some homeowners use the funds for big purchases like a car or RV, major life events like a wedding or vacation, starting a business, or pursuing an investment.

What are some alternatives to home equity loans?

A home equity loan can be a great way to access cash, but it’s not the only option out there. Depending on your goals, budget, and how much flexibility you need, another type of financing might make more sense. Here are a few alternatives to consider before deciding which option is right for you:

• 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 expenses or short-term borrowing, a credit card might be a simpler option. It can make sense if you can take advantage of a 0% introductory offer and pay off the balance before the promotional period ends.
• Retirement plan loan: If your retirement plan allows it, you may be able to borrow money from your 401(k) or other retirement savings. Keep in mind that there are usually limits on how much you can borrow, and you’ll need to pay the money back over time.
• Government loans: Depending on your situation, you may qualify for government programs that help cover home repairs or improvements. These options can sometimes come with more flexible terms or lower costs compared to a traditional home equity loan.

How to unlock home equity to buy before you sell

If you’re hoping to use your home’s equity to buy your next house before selling your current one, a home equity loan isn’t your only option. There’s a simpler way to tap into your equity and make your next move without waiting for your current home to sell. 

With HomeLight’s Buy Before You Sell program, you can use the equity in your current home to make a stronger, non-contingent offer on your next home. It helps take the stress out of juggling two transactions at once by making the buying and selling process smoother and more manageable.

Watch the video below to learn how HomeLight’s Buy Before You Sell works:

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

Is a home equity loan right for me?

A home equity loan can be a useful tool, but whether it’s the right move depends on where you stand financially and what you’re hoping to accomplish. Before taking one out, make sure you’re comfortable with the costs, the added monthly payment, and the fact that your home is used as collateral. 

Planning to use your home equity to help buy another property? HomeLight can connect you with a trusted real estate agent in your area who can walk you through your options and help you make the right move. 

If you want to use your home’s equity to buy your next home without rushing to sell your current one, HomeLight’s Buy Before You Sell program offers a simpler way to make the transition. It can help you make a stronger offer and move forward with more flexibility.

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