What to Expect During the Home Equity Loan Closing Process
Do you remember having to close on your home’s first loan? Well, you have to close on a home equity loan too! So, let’s talk about how the home equity loan closing process works.
Once you’ve decided on the best type of home equity loan for your needs, your next step is to apply.
Processing Your Home Equity Loan
After you’ve applied for your loan, you will enter a processing period. During the processing period, your lender will conduct all of the necessary due diligence required to approve your loan application.
For most lenders, this processing period includes:
- Verifying your borrowing ability and creditworthiness (this is called “underwriting”)
- Conducting an appraisal of your home
- Running a title search to verify any existing liens or debts secured by your property
- Preparing the home equity loan documents
This processing period usually requires the expertise of licensed appraisers, attorneys, title agents and other support staff. For this reason, most home equity loans also carry fees and closing costs.
Home Equity Loan Closing Costs and Fees
Closing costs and fees vary by lender. Discover Home Loans has no origination fees. With lenders that do charge fees and closing costs, you may be able to roll the cost into the loan amount so that you do not have to pay for these expenses upfront.
The largest cost associated with your home equity loan is the interest you pay on the borrowed funds. Your interest rate will vary based on your FICO, loan amount, lien position, and combined loan-to-value (CTLV), which is your loan amount plus your current mortgage balance, divided by your home value. Lower CLTV’s generally have lower interest rates. It is important that you understand how those rates work and how they affect your monthly payment before you close on your loan. Some loans will carry a fixed rate, while others might carry a variable rate. Variable rates usually include a cap that stops the interest rate from going over a specified amount.