How long does it take to process a home equity loan or HELOC?

The general rule for calculating the processing time for a home equity loan or home equity line of credit (HELOC) is this: There is no set-in-stone waiting period. Process times differ depending on several characteristics of the borrower and the situation. 

Of course, to obtain either a HELOC or home equity loan you’ll need to have a certain amount of ownership built up in the property. This is the key determinant for process times. If your equity level is high enough, you can likely go to closing in 45 days or less. What do underwriters do during those crucial days, and what are some other guidelines for estimating loan application processing times?

What Underwriters Do

Paperwork takes time. Applications for home equity loans are complex documents, so it’s understandable that the processing takes several business days. But there’s more to it than that. In between the time you apply and receive your funds, underwriters have to confirm that you qualify for the loan. HELOCs and home equity loans are handled in different ways and are not equally strict when it comes to qualification. 

Have you recently lost your job? Are you self-employed? Has your loan risk gone up or down? Have your credit scores changed significantly since you purchased the home? All these questions, and more, are part of the qualifying process that underwriters face. That’s why “just having the equity” does not mean you get the funds overnight. Everything takes time. 

How Much Equity is Enough?

If you apply for a HELOC, for example, you should have at least 20 percent equity in your home. Many people buy their first homes through FHA programs that don’t require very large down payments. This is also the case for buyers who go through the U.S. Dept. of Agriculture’s “rural area” loan program. In cases like that, it might take you a long time to reach the equity level where you can apply for a HELOC. 

Likewise, even when you do qualify, don’t expect to receive more than 85 percent of the total value of your home in the form of an equity line of credit. That 85 percent is the loan-to-value that the lender allows. Here’s an example: If your home is valued at $200,000 and your equity in it is 20 percent, or $40,000, your HELOC will bring you, at most, $10,000 dollars. 

Lenders look at the total value of all loans, including the HELOC amount, when figuring out how much they can lend to you. In the above example, you still owe $160,000 on the house, so the additional $10,000 HELOC pushes your total amount owed up to the 85 percent maximum.

Other Factors That Take Time

There’s usually a “full underwriting” process for HELOCs and home equity loans because your financial situation could have changed significantly since you originally qualified for the home loan, like taking on a new business and making money on the side. If you bought your home one or two years ago, process times for equity loans can be quite short, as quick as two weeks. But if your purchased more than seven or eight years ago, expect processing time for any kind of equity loan to take up to 45 days.

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