How long does it take to get a HELOC?

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Cash-in refinancing has been all the rage during the low rate environment of the pandemic, but with current mortgage rates well over 5%, home equity lines of credit are now in the spotlight as well.

A home equity line of credit, or HELOC, is a type of loan that lets you borrow against the equity in your home without touching your main mortgage — that’s why it’s commonly called a second mortgage.

Compared to other ways to leverage home equity, such as cash refinance or home equity loans, HELOCs can offer relatively low rates and added flexibility that many homeowners love. For this reason, they’re a good option for those looking for low-cost home-secured financing, says Vikram GuptaExecutive Vice President and Head of Home Equity at PNC Bank.

Pro tip

Be sure to compare quotes from multiple lenders to get the best HELOC rate.

The HELOC application and approval process can take anywhere from a few weeks to a few months, but if you have enough equity in your home and good credit, it may be easier than you think. think. And while the equity in your home you’ve accumulated will limit whether you can get a HELOC and how much you can borrow, there’s no strict time limit on how long you can open a HELOC after closing. your new mortgage – so long as you are ready for the debt.

Here’s what to know about how long it takes to get a HELOC and how to decide if you should get one.

How soon can you get a HELOC after buying your home?

If you’re looking to get a HELOC on your new home, you may not have to wait as long as you think.

“You can take out a home equity line of credit at the same time you take out your mortgage,” says Gupta. This is called a “top-up loan” and can help increase your borrowing capacity. For example, a bank may be willing to lend up to 80% of the value of your home on a mortgage and then lend an additional 10% at the same time in the form of a HELOC.

Most often, borrowers look at HELOCs after they have already taken out their main mortgage. But as long as you have equity, you can start.

“It could be immediately, day one, or it could be 45 years later,” says Gupta. “There are no limits as to when [the borrowers] can start the process.

But the issue of net worth is important: there are limits to how many of your net worth lenders are willing to let you take it. For example, if your mortgage is 90% of your home’s value (known as your loan-to-value ratio), it’s probably too early to start considering a HELOC. You will have to wait until you pay off the mortgage and have at least 20% equity in the home.

Like any loan, the time frame in which you can get a HELOC also depends on your financial profile. Borrowers with better credit scores and less debt overall might qualify for a HELOC sooner than others.

Even if you have a lot of home equity right after you close on your home — for example, if you had a big down payment — it can still be a good idea to wait a bit before taking out a HELOC. For one, you’ll want to get used to making your mortgage payments before adding another monthly cost. And in general, the less debt you have the better, so it’s not always advisable to take out two big loans at the same time.

Factors that affect the time to get a HELOC

Once you have decided to pursue a HELOC, there are a few variables that will affect how quickly your loan will be processed.

“It’s almost identical to the mortgage process, and therefore the mortgage schedule,” says Gupta. You’ll need to provide much of the same documentation, and it will likely take 30 to 60 days, he adds.

Here is what this delay depends on:

Your loan-to-value ratio

If your mortgage is only 50% of your home’s value and you’re looking for a HELOC for another 10%, a lender will likely consider this a low-risk loan because there’s still plenty of equity left. If, however, you try to borrow up to 80 or 90 percent of your home’s value, a lender will order a home appraisal to confirm your home’s value, which can add weeks to the process.

Your creditworthiness

When it comes to obtaining a loan of any type, lenders like to see strong applicants with a good credit score and sufficient income. If a bank can quickly assess that you are a strong candidate, the process is likely to move faster.

“If it’s low risk for the bank, they try to streamline the process,” says Gupta. Sometimes well-qualified applicants may find that the loan process takes less than 30 days.

If you have a lower credit score or have a complicated financial situation that involves a lot of documentation, this could slow down approval.

Is getting a HELOC worth it?

There are certainly advantages to getting a HELOC, but you should also be aware of the disadvantages.

“The pro, definitely, is basically free and the speed of getting the loan,” says Diviner PopePartner and Senior Wealth Advisor at Albion Financial Group, referring to the fact that there are often (but not always) no upfront costs or closing costs associated with obtaining a HELOC.

Another advantage, Pope says, is the flexible payment schedule, which allows you to pay “interest only” on a HELOC for a certain period of time if you wish. And many borrowers like that a HELOC works much like a credit card, where you can tap into an unlimited revolving line of credit and only pay back the amount you spend during the drawdown period.

But there are downsides: Pope points out that HELOCs often have variable interest rates, which means your interest rate — and by extension, monthly payment — could change unexpectedly in the future.

Additionally, says Pope, the flexibility offered by a HELOC can often lead borrowers to misuse funds or overextend themselves. “Debt can be a powerful tool, but it can also be misused,” he warns.

So how do you decide if a HELOC is right for you? Gupta recommends borrowers ask themselves a simple question when looking to borrow money: “How quickly do you want it and how long are you willing to wait?” Because the faster you want it, the more it’s going to cost,” he says.

A credit card, for example, is available immediately, but has the highest interest rates. Whereas a HELOC that takes weeks or months to be approved has some of the lowest interest rates.

If you’re willing to wait, HELOCs are a good choice for financing renovations or other investments in your home. Many borrowers opt for HELOCs because the money is “there if they need it,” but if they don’t use it, they owe nothing in return. But Pope cautions against using HELOCs for non-essential purchases (like a luxury car or boat) or to support day-to-day expenses.

Currently, the trend of rising interest rates also complicates the decision to obtain a HELOC. The market is moving away from a period of historically low rates and the coming years should see rates rise steadily. Since HELOCs have variable interest rates, Pope says you should be prepared for the possibility that the cost of borrowing money through a HELOC will increase over the next few years. But Gupta also points out that some lenders offer HELOCS where you can lock in rates on certain parts of the loan (similar to a fixed-rate home loan), allowing you to protect yourself against future rate hikes.

Alternatives to Obtaining a HELOC

Home Equity Loan

A home equity loan is very similar to a HELOC in that it is a tool that leverages the equity in your home. But instead of being a flexible line of credit, a home equity loan comes in the form of a cash lump sum. This may be a better option than a HELOC if you need all the upfront financing — for example, for a major home renovation or to consolidate other debts. Home equity loans also have the advantage of being a fixed rate loan instead of a variable rate loan, but the trade-off is that they usually have a higher starting interest rate than a HELOC. .

Refinancing by collection

Cash-out refinancing is a process by which you can refinance your primary mortgage to create a larger loan, allowing you to extract the difference between your original mortgage and your larger new mortgage in cash. It’s also a good option if you need a lump sum of money all at once, and has the advantage of being a fixed interest rate, compared to a variable rate HELOC. But if you recently locked in or refinanced a low-interest mortgage, you might not want to refinance it and lose your rate; this is a scenario where Gupta recommends going for a HELOC instead.

Personal loan

Unsecured personal loans are a form of loan that can be used for virtually any purpose, and their flexibility is a big advantage. But because they’re not secured by your home’s equity like a HELOC is, lenders consider them a higher risk and interest rates are generally higher. However, they can be faster to get than a HELOC, with some lenders offering same-day loan approval and financing. Personal loans can be a tool for quick financing in small amounts, especially if you can pay it back quickly and avoid racking up a lot of interest.

0% APR credit card (for debt consolidation)

If you are considering using a HELOC to consolidate other forms of high-interest debt, such as credit card debt, a 0% APR or balance transfer credit card may be a good alternative. This strategy requires careful planning and discipline, as you want to make sure you pay off the balance before the 0% APR introductory period ends and a high interest rate kicks in. If you do correctly, however, you won’t have to pay any interest. And, if you have good credit, getting a 0% APR card is much faster and easier than getting a home equity loan.


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