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

Real estate investors love to use their equity to access critical funds needed to grow their portfolios. Tapping into the equity you own can be a great way to access tens of thousands of dollars without dealing with private lenders or high-interest credit cards. It can feel overwhelming waiting for your equity loan to be funded for new investors. How long does it take to get a home equity loan or HELOC open and funded?

A home equity loan and a HELOC can take anywhere from a few weeks to a month to be funded. The actual timeline varies based on your lender’s underwriting processes, the amount of time it takes you to collect and submit your paperwork, and whether your lender requires a full appraisal or just an AVM.

But before you throw in the towel and start looking elsewhere for funding, let’s talk about the different types of equity loans you can get and what factors can help speed up the process.

WHAT IS A HOME EQUITY LOAN?

A Home Equity Loan is a loan that a lender will give you in return for putting the equity you own in your home down as collateral. These are obtained through traditional lenders like banks and credit unions. Hard money or private lenders do not offer home equity loans.

Wait, What Is Equity?

Equity is the portion of the home you own outright that isn’t currently mortgaged. You usually receive equity when you put a large down payment into your closing offer, pay for your home in cash, or if your home is now worth more than the amount you owe in a mortgage.

How Does Equity Work?

Let’s say that you bought your home for $115,000, and you’ve paid down $15,000 of that. While you’ve owned your home, though, your property value has increased to $200,000.

Since you owe $100k on a $200k property, you have an additional $100k in equity.

Home equity loans are given to the borrower as lump sums like you would receive in a traditional loan. These are paid back in monthly installments with a fixed interest rate.

Usually, a lender is willing to give up to 95% of the property’s value in an equity loan. So your $200k property could get you an equity loan for up to $190,000. However, since you don’t own the home outright, the amount you still owe would be deducted from the equity available. If you attempted to get a home equity loan on your $200k house but still owe $100k, you would only be eligible for $90k instead of $190k.

Another way to make your home equity work is a home equity line of credit, also known as a HELOC.

HOW DOES A HELOC WORK?

A Home Equity Line of Credit (HELOC) is similar to a home equity loan, except it offers a little more flexibility. HELOCs act like open lines of credit on your credit cards, except that the equity you own is used as collateral instead of being unsecured.

HELOCs are a preferred method for real estate investors over home equity loans. The reason is that while they have variable interest rates, the interest doesn’t begin to accrue until you take it out of your HELOC account. 

Think of it as having a separate savings account or credit card that accrues no fees or interest rates until used. It’s a great way to pad your financial safety net and help fund your real estate ventures. 

HOW LONG DOES IT TAKE TO GET A HOME EQUITY LOAN?

Ready to tap into that equity? Here’s what you’ll need to do:

  1. Research the lenders in your area. I prefer to use credit unions for this, but take some time to find the available banks or traditional lenders in your area. Find out their underwriting procedures and what timelines you can expect through their application process.

  2. Get all of your paperwork together and submitted ASAP. The sooner you can collect and submit your documents, the faster you’ll go through the underwriting process. Banks will want to see things like your credit report, income and bank statements, employment history, etc. Pull out all of the documents you need for your mortgage and update them, as these will most likely be the same things you’ll need to submit for equity loans.

  3. Wait for the appraisal process. Your bank will want to appraise the home to see what amount of equity you own and the house’s current market value. Many lenders will now use what’s known as an Automated Value System, or AVM. An AVM gives them an instant value of the home through computer-generated metrics. Having an AVM can shave weeks off of your application, but if it’s not an available option, expect to add anywhere from 1 to 3 additional weeks for a full appraisal report to be created.

While the timing varies from lender to lender, a reasonable average timeline is about a month from application to receipt of funds. 

WHAT CAN I DO WITH A HELOC OR HOME EQUITY LOAN?

So now that you’ve been approved and have a hefty sum of money burning a hole in your pocket, what should you do with it?

While I might be biased, I think you should use it for real estate investing. Most seasoned investors prefer getting a HELOC over an equity loan due to how interest is handled. Thanks to your equity, having these additional funds can help you save a ton of money. 

Knowing that you have a lump sum of money ready and waiting, interest-free (while it waits), takes the pressure off finding the right property. However, home equity loans mean that your interest starts accruing from day 1, which might make you feel like you need to find a property and get to work, turning a profit quickly. 

Using funds from your equity can help lower your overall costs using a private or hard money lender. Rather than needing to borrow, say, $120,000 to secure a property, thanks to your $90,000 HELOC, you’ll only need to borrow $30,000 from a hard money lender. This could save you money by lowering the amount that accrues interest to your private lender and gives you more buying power to find that right investment property. 

FINAL THOUGHTS

Tapping into the equity you have in your own home can be a great way to fund your investment portfolio. Research the lenders in your area to find one who works in a timeline that best suits your needs, and get your paperwork ready to submit as soon as possible. Doing these things can ensure that you reduce your waiting time by weeks and can get started with your newest investment property as quickly as possible.

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