Do You Know The Processing Time For Home Equity Loans and HELOCS?
Are you a homeowner who has considered borrowing against the equity you have built up in your property? If so, you’re probably already familiar with the two primary methods for doing that: home equity loans and home equity lines of credit (HELOCs). Each method has its own set of rules, advantages, disadvantages and processing times. Here is a short explanation about what you should expect the average processing times to be for each type of loan, along with some of key points of difference between the two.
HELOCs
Processing time for a HELOC can be as short as 30 days. Because the crux of qualification is the amount of equity you have in your home, it’s quite possible to qualify for a HELOC at the same time you make your original home purchase. Lenders will use the 30-45 days to determine that you meet the basic loan criteria like income, debt-to-income ratio, equity, credit scores, and employment history. You’ll need to have about 20 percent equity in your home in order to qualify, but as noted above, it only takes HELOC lenders a few weeks to verify the other criteria, so you can be approved in under 30 days if all goes well.
Home Equity Loans
Applications for home equity loans can also be processed quite quickly, often in less than four weeks. Borrowers can speed the process along by gathering all the relevant documents and having them ready before they meet with lenders. What will you need? Common items a lender will request include deeds, proof of income, a recent mortgage statement that shows how much you currently own on the property, a list of other debts, a property tax assessment, at least two years of prior years’ tax returns, and verification of any income that’s not shown on the pay stubs.
In order to gather all these items, you might need a couple of weeks. After that, the underwriting agent will go through each document and verify the data before approving the loan. As is the case with HELOCs, you’ll need to meet the basic criteria of the lender, which can include credit score minimums, employment history, income thresholds, equity amounts and debt-to-income ratios.
The bottom line for both the HELOC and home equity loan applicant is this: as long as you meet the basic requirements and have the necessary documents ready to go, it’s common for a loan approval to take about one month.
Key Differences Between HELOCs and Home Equity Loans
HELOCs are like credit cards because there is no lump-sum payment to the borrower, as is the case with home equity loans. And HELOCs come with variable interest rates while traditional home equity loans offer fixed-rate financing. Finally, full interest-plus-principal payments begin immediately with a home equity loan. HELOC borrowers can often make smaller, or interest-only payments, during the initial draw period on their loan. Home equity loans are inflexible in terms of interest rates and amounts borrowed but HELOCs allow variable interest and variable borrowing amounts up to the draw limit.