How long does it take to close on a HELOC
The HELOC closing process usually takes about three to six weeks; however, there are steps you can take to speed up the process and the HELOC closing time. Preparing your documents is one of the most important steps you can take to be proactive as you start the application process. Be ready to provide personal identification, your latest mortgage statement, and proof of income and employment.
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What are HELOCs & how do they work?
A What Is A HELOC and How Does It Work is a type of “revolving” credit that is provided by a lender and which has a credit limit, a variable interest rate, and is secured by the equity in your home.
Credit cards are another type of revolving credit, but they tend to come with higher interest rates than HELOCs, making HELOCs a better choice for borrowing large amounts of money. Like credit cards, HELOCs can be used for any type of expense, such as home renovations, buying a second home or investment rental property, paying for college tuition, and paying off high interest debt.
A HELOC is a “secured loan,” that requires security or collateral (in this case your home) to secure the loan. Failure to repay a HELOC could lead to foreclosure by the lender.
HELOC closing process
Gather necessary identification and documents. In addition to looking at your home equity, credit score and credit history, lenders will ask to see proof of employment and proof of income.
Provide proof of homeowners insurance and inspection. All lenders require homeowners’ insurance for all home loans and mortgages. The insurance company may want to perform a home inspection prior to issuing an insurance policy.
Credit check. The lender will ask your permission to check your credit score. Applying for a HELOC requires a “hard inquiry” which will affect your
credit score, causing a drop in your score. If you are declined a HELOC due to bad credit, there are ways to
improve your credit score.
Property appraisal. The lender will also require an appraisal to determine your property’s market value. The value of the property will be one of the factors on which your HELOC limit is based.
Closing costs. The exact amount of closing costs will vary depending on the lender’s fees. Credit unions tend to have some of the lowest closing costs. For example, a
HELOC from Credit Union of Southern California’s has no appraisal fees for single unit loans, no annual fee, and no closing costs.
Review and sign paperwork. Depending on your lender, this may be completed online or in-person.
Recording of lien. When a lender gives a homeowner a HELOC, the loan is considered a lien against the property that secures the loan. This lien is recorded as a Deed of Trust in the county in which the home is located. A Deed of Trust protects the lender in the event the loan is not repaid, by allowing the lender to take and sell your home to recover their loss of funds.
How to speed up the HELOC closing process
If you need money quickly, there are ways you may be able to speed up the HELOC closing process. To apply for and get approved for a HELOC you’ll need to meet the lender’s
HELOC eligibility requirements. Preparing ahead of time is one way to speed up the HELOC closing process. Here are some other ways:
Research and compare lenders. Credit unions, banks and online lenders offer HELOCs, and each will have different interest rates, terms, and conditions. Be sure to speak to local lenders, ask questions, and take time to decide which option best meet your financial needs.
Gather necessary documents early. The better prepared you are to provide pay stubs, proof of income and employment, and proof of outstanding debts, the shorter the time to close.
Improve your credit score. Most lenders have a HELOC credit score requirement of 660, although some lenders may require a higher score. The higher your credit score, the better (lower) the interest rate you’ll be offered on a HELOC and other loans. If you do not have at least a 660 credit score, you will need to
Can A Credit Union Help Build Or Fix Your Credit Score?.
Stay in touch with your lender. Your loan representative will guide you through the process. Be sure you understand all the documents you sign, as well as the terms and conditions of the loan. If you don’t understand a loan feature, be sure to ask the lender for information.
How long does it take to fund a HELOC after closing?
Following the closing is a three-day Right of Recission period during which you may rescind (cancel) the transaction without penalty. If you do not cancel the loan within this three-day period, your funds will be deposited into your designated account on the fourth or fifth day after closing.
What happens after closing on a HELOC?
After your account is funded, you will be able to use the money any way you wish, and you can withdraw any amount up to your limit. Depending on your lender’s policies, your first statement will be mailed or emailed to you as soon as 10 days after closing. If you have requested checks or a debit card, you will receive these in the mail as well.
As you spend your funds you will make monthly interest-only payments on the amount you have used. As you repay your outstanding balance, the funds in your account will be replenished.
Are HELOCs worth it?
A HELOC may be worth it if you’ve run the numbers and are confident that this type of second mortgage meets your financial needs. Just remember, a HELOC is secured by the equity in your home and failure to repay the loan can result in the bank foreclosing and taking your home.
HELOC FAQs
How do HELOCs compare to home equity loans and cash-out refinances?
A
home equity loan is given as a lump-sum and is repaid at a fixed interest rate. Getting a
cash-out mortgage refinance requires that homeowners get a new mortgage at a new interest rate.
How much HELOC can I get?
The dollar amount of
HELOC loan you can get depends on your ability to meet the lender’s eligibility requirements, which may include a good credit score, the amount of equity in your home, the lender’s maximum loan limit, and other requirements that may be unique to each lender.
What can I use a HELOC for?
The
funds from a HELOC can be used for anything. Some popular uses are
home improvements, college tuition, emergency expenses, weddings, business expenses, and purchasing an investment property.
Are HELOC rates fixed?
HELOC typically come with a variable interest rate, which means the interest charged on the loan is based on a financial index that varies. As the financial index moves up and down based on economic factors, the interest rate charged to the borrower fluctuates. More and more lenders are starting to offer fixed rate HELOCs.
How can I calculate my HELOC payment?
Here’s how to calculate payments on a $200000 HELOC with a 9% interest rate and a 10-year term.
Total Payment = Principal (1 + Rate x Term)
Total Payment = $200,000 (1+ (0.09) (10))
Total Payment = $200,000 (1+ 0.90)
Total Payment = $200,000 x 1.90
Total Payment = $380,000
To calculate your monthly payment amount, divide the total payment by the number of months in the loan term. For example, there are 120 months in a 10-year loan term.
Monthly Payment = Total Payment ÷ Number of Months
Monthly Payment = $380,000 ÷ 120
Monthly Payment = $3,166.66 per month
Is a HELOC considered a second mortgage?
Yes, a HELOC is a type of
second mortgage. Any loan based on the equity on your home is considered a lien, meaning that if the loan is not repaid, the lender can foreclose on your home to recover the value of the money you owe.
Can you use a HELOC to pay off a mortgage?
Using a HELOC to pay off your mortgage is possible; however, there are some important caveats to consider. First, using a HELOC to pay off your mortgage means you will need to retain a reliable positive cash flow (for example, steady employment and income) to make the monthly payments. While a HELOC can save you money in interest payments versus paying a mortgage over the course of 15 or 30 years, it’s important to note that HELOCs have a variable interest rate, which means there may be months when your HELOC interest rate could be higher than what you were paying on your mortgage.
Why Savvy Consumers Choose CU SoCal
For over 60 years, CU SoCal has been providing financial services, including HELOCs, car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our HELOC experts.
Get Started on Your Home Equity Loan Today!