Your guide to the HELOC process
The HELOC process works a lot like the mortgage process: You’ll get rate quotes, choose a lender, submit financial documents and wait for an appraisal. Once you’re approved, you’ll close the loan and get access to your funds. Many HELOC lenders provide streamlined online applications to help speed up the process.
With home equity near record-high levels and mortgage rates rising, a home equity line of credit can be a great way to cash in on your home’s value without refinancing. If a HELOC seems right for you, here’s how to get started.
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How to get a HELOC in six steps
There are six basic steps required to get a HELOC:
- Get your credit in shape first, if you have time
- Compare HELOC rate quotes
- Complete your application and provide financial documents
- Wait for approval, including underwriting and appraisal
- Close on the loan and pay any upfront fees
- Receive access to your line of credit
Let’s dig into each of those steps in a bit more detail.
1. Get your credit in shape
If you’re not in a rush to apply immediately, take some time to check in on your credit first. A little effort now could make it easier to meet HELOC requirements and earn you a much lower interest rate. And that could save you serious money.
Check your credit reports
Start by getting a free copy of each of your credit reports using annualcreditreport.com. Read each of your credit reports carefully. Errors are much more common than you may think. If you spot one that’s hurting your credit score, begin the process of having it corrected. Chances are, that will take some time. But you can prove to lenders that you’ve started fixing the error, which may help you qualify.
Reduce credit card debt
If possible, pay down your credit card balances and keep them low before applying for a HELOC. This can lower your debt-to-income ratio and improve your credit score — making it easier to qualify for a low rate.
Many experts recommend keeping your credit balances below 30% of your total limit, although FICO suggests that a credit utilization ratio of around 10% is ideal. As a rule of thumb, the lower your credit usage is, the better.
2. Compare HELOC rate quotes
Assuming your finances are in order, the first step to getting a HELOC is comparing rate quotes from multiple lenders. This is vital because different lenders can quote wildly different rates and closing costs on HELOCs. The more quotes you get, the better deal you’re likely to find.
There’s usually some trade-off between HELOC rates and fees. Some lenders offer low or zero closing costs, but these almost always charge higher interest rates. Other lenders focus on low rates but charge higher upfront costs. You need to pick the overall deal that suits your needs best.
The more information you provide to a lender when requesting a quote, the more accurate it will be. But the amount of information lenders request at this early stage varies considerably. It may sometimes take only a couple of minutes to get a HELOC estimate online.
3. Complete your application
Once you’ve chosen a lender, you’ll complete a full HELOC application. Applying online can be quite quick, with some lenders suggesting a 15-minute process. But remember that the underwriting process will involve full documentation of your finances and a new home appraisal, so don’t expect instant approval.
Applying for a HELOC requires most of the same documentation you supplied when you got your original mortgage. That includes W-2s or 1099s, pay stubs, bank statements, and investment account statements. Your HELOC lender will check your credit score and credit history. It will also want to see the most recent mortgage statement for any existing home loans and proof of your ownership.
To give you a clear picture, here’s one HELOC lender’s full list of what you need to apply:
- Personal information (name, home address, phone number, and social security number)
- Co-applicant’s personal and employer information, if applicable
- Employer information (name and phone number of employer)
- Financial assets (description, financial institution, and value)
- Financial debt (lender name, payment amounts, and balances)
- Collateral information (asset, lender name, balance/value, and description
Sample list of HELOC documents from Trust Bank. Required documentation varies by lender.
If you’ve moved or changed jobs over the previous two years, expect to provide details of past addresses and employers.
If you apply for a HELOC online, you can scan and upload documents instantly. Or you can copy them and either mail them in or drop them off at a local branch if there is one.
Connect with a HELOC lender to start your application4. Wait for approval
After you’ve applied for a HELOC, you’ll wait for final approval. This can take anywhere from a few days to a few weeks, depending on how busy the lender is and whether or not you need an in-person appraisal. If you’re in a hurry, ask lenders about their appraisal processes and normal wait times before applying.
Timing will also depend on how quickly you turn in financial documents and respond to questions or conditions the lender sends back.
Underwriting
During underwriting, the lender will thoroughly review your finances and credit history to determine whether you qualify for the loan. If the underwriter spots an anomaly or has any doubts, expect a call asking for clarification or additional documents. The sooner you help resolve any issues, the faster you can get your hands on your line of credit.
Home appraisal
Since your equity secures a HELOC, lenders almost always require a new home appraisal to determine the property’s current market value. This helps the lender calculate how much equity you have and determine your maximum loan amount.
Nowadays, many appraisals are carried out online using resources such as Google Street View and public records of recent sales in your neighborhood. These are typically cheaper, faster, and less disruptive for the homeowner. But a lender may still insist on an in-person appraisal. That’s most likely to happen if your home is hard to compare with others or you want a big line of credit.
Keep in mind that while the appraisal adds time to the approval process, it can also work in your favor. Home values have risen steeply in recent years, meaning many homeowners have built equity at a rapid pace. You might be able to borrow more than you anticipated.
5. Close on the loan
Once you receive final approval on your HELOC, you’ll pay any closing costs due and sign the final loan documents.
Note that it will take a few days before you can access the HELOC credit line. Technically, you’ll have to wait until midnight on the third business day after closing. That’s the “rescission” period, during which you can walk away from your HELOC if you change your mind (unless it’s secured on a home other than your principal residence).
6. Access your home equity line of credit
Once a HELOC is set up, homeowners can access the funds in a few different ways. Each lender can choose its own method(s) of HELOC funding. Most provide one or more of the following:
- Checkbook
- Debit card
- Electronic transfers (online or by phone)
- In-branch cash withdrawals
You shouldn’t find it hard to use your line of credit.
How long does HELOC approval take?
Getting a HELOC often takes between two and six weeks. The timeline largely depends on the lender’s efficiency, your responsiveness to queries, how big a line of credit you want, and how easy your home is to appraise. Thirty to 60 days is probably a reasonable expectation, barring any unexpected hangups in the process.
Check your HELOC options. Start hereSome lenders pride themselves on fast HELOC turnaround times and you may see this advertised on their websites. If you’re keen to get the money quickly, you may want to choose one of those. But you should still do your due diligence and compare rates and costs beforehand. Make sure you’re not paying a premium for quick access to cash.
Is it hard to get a HELOC?
If you have plenty of home equity and a good credit score, getting a HELOC should be relatively easy. But, as with any mortgage, the amount you can borrow and the interest rate you’re offered depend heavily on your financial situation.
Verify your HELOC eligibility. Start hereQuite a few lenders require a credit score above 680 or even 700 to get a HELOC. But some allow FICO scores starting at 620 in some instances. Similarly, some lenders demand a debt-to-income ratio below 43%, while others can live with 50%. And requirements for loan-to-value ratios typically range from 80 to 85 percent.
Remember that lenders always like borrowers with high credit scores, low debt ratios, and a comfortably thick “equity cushion” (meaning you’re not borrowing the maximum amount available). The best interest rates usually go to borrowers with FICO scores above 700. Lower-credit homeowners and those with maxed-out borrowing amounts could see substantially higher rates.
If your application is strong in one or two respects and weak in one or two others, a sympathetic lender may be willing to help you. For example, if your credit score is low but you only want to use a small fraction of your equity and have few existing debts, you might still get approved.
How to get a HELOC: FAQ
HELOCs usually require a credit score of 680 or higher and a debt-to-income ratio of 43 percent or lower. You also need a stable income and employment to qualify for the loan. Most HELOC lenders let you borrow up to 80 or 85 percent of the home’s value, so you typically need more than 15 to 20 percent equity before getting a HELOC.
HELOC closing costs could be as much as two to five percent of your maximum credit limit. Some lenders offer HELOCs with no closing costs, but these may have higher interest rates. Be sure to check rates and fees when applying for a HELOC.
Don’t worry about your credit score when shopping for a HELOC. FICO will count all your applications as a single one as long as you get all your quotes within a two-week period. And a mortgage application typically dings your score by just five points or less. That said, it’s often best to get all your HELOC quotes on the same day. Interest rates can change from one day to the next, and getting estimates on the same day will provide you with a better head-to-head comparison.
Almost all HELOC lenders require a new home appraisal to verify the home’s current value. Some lenders allow online appraisals, which can be faster and more efficient. But some HELOC applications still require a traditional, in-person appraisal.
Some lenders enforce a waiting period of up to six months before you can get a HELOC. But not all lenders do, so shop around for one that could approve you sooner. Remember that you need more than 15 to 20 percent equity before qualifying for a HELOC. If you made a big down payment when you bought the home, you might be able to get a HELOC right away. But if you made a small down payment, you’ll have to wait until you’ve built up enough equity to borrow against. Rising home values add to your equity and may allow you to get a HELOC sooner.
Your next steps
If you’re ready to get a HELOC, the first step is to compare rates and find the cheapest lender for your situation. HELOC rates and fees vary a lot from one lender to the next, so getting quotes from more than one company could save you serious money.
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