How long do home equity loans take?

The process from applying for a home equity loan from Discover® to receiving funds can be as quick as 30 days, but will depend on a number of factors.

It’s possible to complete the Discover Home Loans application form in a matter of minutes. You will receive a list of loan options, along with corresponding disclosures about the loans that you prequalify for within three days of your application. If you accept a home equity loan offer, you will then supply verifying documentation, such as a government-issued ID and 30 days of recent paystubs.

When your final application is accepted, the processing period for your loan will begin, which will also set your proposed closing date for the loan. For a typical Discover home equity loan, the average closing date is near to 55 days from your application.

In this article, we cover how long it takes to apply for a home equity loan, how long it takes to receive the funds, and how long you have to repay it.

How long does it take to apply for a home equity loan?

It can take just minutes to complete a Discover home equity loan application. The application process is simple and can be completed online or over the phone.

When applying, you are asked to provide information about the type of loan you want to take out (loan amount), the current value of your home, your remaining mortgage balance, and demographic information, including your name, income, marital status, and social security number (SSN).

Once you’ve supplied this information, Discover reviews your credit history to determine if you prequalify and to help narrow down your loan options.

To begin the final approval process, you will select the loan option that fits your needs and are then asked to upload relevant documentation, including government ID and recent pay stubs.

When you apply for a Discover home equity loan, you will receive updates on your progress all along the way. In general, the faster you can provide the requested information to confirm your eligibility, the quicker your loan file will move through the application process.

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

The average time between when you complete your application and when you receive a payout typically takes approximately 55 days. However, the exact time will vary between homeowners based on how complex your situation is and how long it takes you to submit your paperwork.

After you complete the home equity loan application, you will enter into a processing period. During this time, your lender will review all of the personal and financial information required to approve your application. For most lenders, the processing period includes:

• Verification of borrowing ability and creditworthiness
• Home appraisal to determine the market value of your home
• Title search to verify any existing liens or debts on your property
• Preparation of home equity loan documents

During this process, you may require the expertise of attorneys, licensed appraisers, and title agents. For this reason, most home equity loans include additional processing fees and closing costs. However, a Discover home equity loan has no origination fees, no appraisal fees, and no charges at closing.

Once your loan has been processed, you will receive a lump sum payout for the home equity loan into your preferred account.

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

In general, you can get a home equity loan with a repayment term ranging from 10 to 30 years.

A Discover home equity loan offers flexible terms of 10, 15, 20, or 30 years in amounts between $35,000 to $300,000. For example, if you borrowed $60,000 for a 20 year term at 8.99% APR, your fixed monthly payments would be $539.45. How long a home equity loan takes to repay will depend on your budget, what you qualify for, and how quickly you want to repay your loan.

You can use the Monthly Payment calculator by Discover to estimate your monthly payments with different term options.

To use the calculator, you are asked to enter your home value, remaining mortgage balance, and credit score to determine how much the home equity and credit that you inputted will allow you to borrow. In general, the shorter your term, the higher your monthly payments will be. However, you will pay fewer interest charges over the life of the loan with a shorter term. 

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. The prepayment penalty may be based on a percentage of your remaining mortgage balance, or it may be calculated based on a certain number of months’ interest.

Discover Home Loans does not have a prepayment penalty but does require expense reimbursement if the loan is paid off within the first 36 months.

How to improve your likelihood for 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:

• Home equity. Lenders often use your combined loan-to-value ratio (CLTV) to determine if you have sufficient equity. Your CLTV is calculated by taking your existing mortgage balance(s) plus your desired loan amount and dividing it by the market value of your home.

CLTV = (Loan amount + Mortgage Balance) ÷ Home Value

• Credit score. While credit score requirements will vary based on your lender, Discover Home Loans requires a credit score of 620 to qualify. A higher credit score usually results in more favorable terms like a lower interest rate.
• Credit history. Lenders review your credit history to see if you’ve missed any payments on your mortgage or other debts. How you’ve handled your credit in the past is used as an indication of how you will handle it in the future.
• Income verification. Lenders will likely want to see your most recent W2 and your most recent pay stubs to confirm your employment and income information.

To improve your chances of being approved for a home equity loan, you can try the following:

Increase your home equity.

The more equity you have in your home, the more money you may be eligible to borrow. You can increase the equity in your home by remodeling or renovating your space to add value to your home or by paying down your mortgage to reduce your home debt.

Improve your credit score.

Your credit score signals to lenders how likely you are to repay your loan. The higher your score, the more reliable you appear. To improve your credit score, be sure to pay all of your bills on time, limit hard inquiries, and reduce the amount of your credit balances as compared with your credit limits.

Increase your income and reduce your debt.

When deciding whether or not to loan you money, lenders often look at your debt-to-income (DTI) ratio. Your DTI is another way of determining how risky it is to give you a loan. The DTI ratio looks at how much of your monthly gross income goes toward debt payments.