How long does it take to get a home equity loan?

How long does it take to receive funds from a home equity loan?

The exact time can vary depending on how complex your situation is, how long it takes you to submit paperwork, how long it takes a lender to process your application, and other factors.

After you complete a home equity loan application, you should enter a processing period where your lender reviews all your personal and financial information.

The processing period may include the following:

• Verification of borrowing ability and creditworthiness
• A home appraisal to determine the market value of your home
• A title search to verify any existing liens or other issues associated with your property
• Preparation of home equity loan documents

During this period, you may require the expertise of an attorney, licensed appraiser, title agents, and other professionals. For this reason, many home equity loans include additional processing fees and closing costs. 

Once your home equity loan has been approved and closed, you will typically receive a lump sum payout into your preferred account.

How long does it take to repay a home equity loan?

How long a home equity loan takes to repay will depend on factors such as your loan amount and repayment schedule. Loan term lengths may vary by lender.

A home equity loan from Discover can come with flexible terms of 10, 15, 20, or 30 years in amounts between $35,000 to $300,000 (2nd Lien). For example, if you borrowed $60,000 for a 20-year term at 8.86% APR, your fixed monthly payments would be $534.45.

You may want to use this monthly payment calculator to estimate your monthly payments with different term options for a home equity loan or mortgage refinance from Discover. To use the calculator, enter your loan amount, estimated home value, mortgage balance, credit score range, and state to see what monthly payment amount you may qualify for, as well as other information. Generally, loans with shorter terms have lower interest rates but higher monthly payments. 

Can you pay off a home equity loan before the term expires?

Some lenders may include a prepayment penalty if you pay off your home equity loan before the term expires. A prepayment penalty is meant to protect the lender in the event you pay early and they lose revenue over time. 

A prepayment penalty can be calculated in different ways, such as a percentage of your remaining mortgage balance or based on interest charges for a certain number of months. Discover Home Loans has zero prepayment penalties.

How to improve the likelihood of a home equity loan approval

When applying for a home equity loan, the lender will typically look at the following criteria to determine if you qualify:

• CLTV. Lenders often use your combined loan-to-value ratio (CLTV) to help determine how much you may be able to borrow against your home equity. Your CLTV is calculated by adding your existing mortgage balance(s), the balance of any other loans secured by your home, and the potential new loan amount and then dividing this number by the appraised value of your home.
• Credit score. While credit score requirements may vary based on your lender, Discover Home Loans requires a credit score of 680 or higher to qualify. A higher credit score may secure better interest rates.
• Credit history. Lenders typically review your credit history to see if you’ve missed any payments on your mortgage or other debts. How you’ve handled credit in the past may give lenders an indication of how you’ll handle it in the future.
• Income verification. Lenders will likely want to see your employment and income information. You may need to provide documents like W-2 forms and pay stubs.

Increase your home equity

A home equity loan lets you borrow against the equity in your home. In general, the more equity you have, the more money you may be eligible to borrow.

You may be able to increase the equity in your home in various ways. For example, remodeling or renovating your space may add value to your property, while paying down your mortgage may increase your equity stake.

Improve your credit score

Your credit score can signal to lenders how likely you are to repay your loan on time. Usually, a higher credit score makes it easier to qualify for a loan and may lead to a better interest rate or loan terms.  

To potentially improve your credit score, be sure to pay all your loans on time, don’t get too close to your credit limit, and make sure your credit report doesn’t have errors.

Increase your income and reduce your debt

When deciding whether to loan you money, lenders often look at your debt-to-income (DTI) ratio. This is the percentage of your monthly gross income that goes toward debt payments.

Increasing your income and/or decreasing your debt may improve your chances of getting a home equity loan.