Considering a HELOC for home renovation projects or personal expenses? Here's how long it takes to get a HELOC and what you need to apply for a HELOC.
Until the beginning of 2022, interest rates across the United States had been consistently low, and the average American homeowner was able to refinance at historically low rates. In many cases, homeowners used this as an opportunity to cash-out refinance, pulling out money to use while taking advantage of low mortgage interest rates.
But from March to December 2022, the Federal Funds Rate increased by a staggering 4.25%; from 0.25% to 4.5%. As mortgage rates increased to keep pace, the prospect of refinancing for extra cash began to look like a risky financial move.
So in this current economic landscape, how do homeowners access equity in their homes in financially sound ways? A home equity line of credit, or HELOC, could be the answer you’re looking for. Read on to learn more about how a home equitiy line of credit works and how long it it does to get a HELOC.
What is a HELOC-Home Equity Line of Credit?
A home equity line of credit, also known as HELOC, is a type of loan that allows a homeowner to borrow against the accrued equity they have in their home, without needing to adjust their existing mortgage. If you managed to lock in a low rate mortgage before interest rates increased, a HELOC means you won’t need to sacrifice this low rate when you access this money.
With loans of this type, many homeowners choose to use their HELOC funds for large-scale home renovation projects or to fund personal expenses like unexpected medical bills, college tuition, or a wedding.
HELOCs are often referred to as a second mortgage, but unlike traditional home equity loans, a HELOC is a revolving line of credit that allows you to borrow as much as you need up to a fixed credit limit. Like a credit card, once you’ve paid off the balance, you can borrow up to the maximum limit again.
HELOCs are set up in two phases:
The draw period - this is where you can borrow as much money as needed, typically up to 10 years from the start date.
- The repayment period - you can’t withdraw funds during this phase, but the repayment period can last up to 20 years. Like a mortgage, you can pay this in monthly installments.
Once the draw period is complete, HELOCs can be renewed at the approval of your bank.
One of the biggest benefits of a HELOC is their typically low interest rates compared to other loans. They give you monetary flexibility, while providing low-cost financing options, all secured by your home.
Repayment amounts can fluctuate over time, though, as HELOCs often have variable interest rates.
How Long Does It Take to Get a HELOC?
Every lender is different, with the underwriting and processing timelines varying across the country. However, the average time from application to approval for a HELOC is around 2 to 6 weeks. Underwriting is generally the part of the process that takes the longest, which can be anywhere from a week to 30 days or longer.
At First National Bank and Trust, we know that time is of the essence when it comes to getting a HELOC and having access to money. That’s why we make our approval process as quick and easy as possible.
Some factors to keep in mind that will impact your HELOC approval and processing times are:
- Your Credit Score: With a good credit score, it’s more likely that your bank will approve your loan quickly. If you have a complicated credit history, it can take longer for the lender to vet your financial history. While every lender is different, a credit score of 620 or higher will put you in a better position for qualifying for a HELOC.
- Loan-to-Value Ratio: No matter how long you’ve owned your home, your LTV will impact your approval time. If your first mortgage accounts for 55% of your home’s current value and you’re looking to borrow another 5%, a lender may look at that as low risk since you still hold sizable equity in your property. If the total amount of your existing mortgage and HELOC add up to around 80-90% of your home’s value, though, the approval process may be longer. Most lenders like to see applications where the homeowner has at least 15-20% equity in their home.
- Home Appraisal: Like when you took out your mortgage, a HELOC application mayrequire you to complete a home appraisal. Scheduling the appraisal and waiting for the report to come back all adds time to your application approval process.
How Can I Speed Up the Approval of My HELOC?
There are steps you can take as a homeowner to speed up the process of getting your HELOC approved. If possible, avoid having a co-applicant. The underwriting process will take longer for every individual listed on the loan, so if you can financially afford to take out the HELOC on your own, this will improve your processing time.
You should also have your required HELOC documentation ready before submitting your application. Your lender will need details on your assets, income, and any existing loans you have. It’s likely that you’ll need to provide:
- Name, address and social security number
- Copy of a government-issued ID like driving license or passport
- Your address and any previous addresses, depending on how long you’ve been living in your current residence
- Employer information
- Pay stubs for the last 30 days
- W-2 forms for the previous 2 years
- Bank statements for the previous two months
If you’re self-employed, you’ll likely need to provide the previous 2 years of profit-and-loss statements, along with your last 2 tax returns.
Any disability, social security or pension awards, 1099s or bank statements showing these awards should also be provided if applicable. If you’re providing alimony or child support, you should also provide information about this.
Finally, you’ll need property information about the residence for which you’re using the HELOC. This includes the latest mortgage statement, homeowners' insurance policy declarations page, a property tax bill from the most recent year, and flood insurance declaration if you live in a flood zone.
How Much Can I Borrow with a HELOC?
The amount that you can borrow depends on a number of factors, including your income, credit history, the current value of your home, and the amount of equity you have in the property.
In most cases, you can borrow up to 80% of your equity. But keep in mind how much you can afford to repay, both during the interest-only draw period and in the repayment period once the draw period ends.
HELOC payments are calculated based on the interest rate, the age of the loan, and any rate caps in place.
Apply for a HELOC at Your Trusted Bank
With the knowledge, resources, and great rates available at First National Bank and Trust, you can apply for a HELOC today.
