5 ways to minimize the time it takes to get a HELOC

You’ve set your sights on a goal, you’ve decided to apply for a home equity line of credit, and you’re ready to use the money. But you’ve also heard that a HELOC is a second mortgage…and your last mortgage took three months to close. 

First, it usually doesn’t take that long to get a HELOC.

Second, there are a few steps you can take to minimize delays so the process can move forward as quickly as possible. 

You could be looking at two to six weeks, so let’s explore some of the ways to show up prepared and help your lender process your application efficiently. 

1. Check your credit standing

Before you begin the application process, give your credit reports a once-over. You can order a free copy of your report from all three credit reporting agencies—Experian, TransUnion, and Equifax—through AnnualCreditReport.com.

Once you have the reports in front of you, comb through them, looking for mistakes. No detail is too small. If the report has an incorrect current address, shows that you owe a balance you don't owe, or is in any other way off the mark, dispute that error with the credit reporting agency in question. For example, if you spot a mistake on the Experian report, begin a dispute through the Experian website while you’re viewing your credit report. 

Here's how it speeds things up: Any time you apply for a loan, the lender wants to be confident that you can repay the debt. Mistakes on your report could give a lender the wrong idea about your credit standing. 

2. Shop for the right HELOC lender

If you want to shorten the time it takes to receive your money, the right HELOC lender makes all the difference. Finding a lender that doesn’t require an in-person home appraisal could speed up the process. A traditional home appraisal process can cause a significant delay, so before you decide on a lender, find out how it handles home appraisals. 

Here's how it speeds things up: It could take weeks for an in-person home appraisal to be completed and sent to the lender. When a lender uses home valuation software instead, the time you spend waiting is generally minimized. 

3. Decide if you need a co-borrower

If you need a co-borrower to help you qualify for a HELOC, by all means, use one. However, if you've got a healthy credit profile and earn enough to be eligible on your own, consider going that route. 

Here's how it speeds things up: When a loan is in underwriting, it means the lender is evaluating how likely you are to repay the loan. The process includes looking at everything, from your income to how well you've managed debt. With a co-borrower, underwriters must examine two credit histories instead of one. Applying on your own could save you a bit of time.

4. Manage the loan amount

You can help move things along by borrowing as little as possible. The lender will consider two ratios: the loan-to-value ratio (LTV) and your debt-to-income ratio (DTI).

The LTV is how much you're borrowing compared to the value of your home. Most lenders allow for an LTV of 80%, and that includes your primary mortgage plus the new home equity loan or HELOC you want. 

Here’s how LTV works. Say your home is worth $300,000, and you still owe $100,000 on your mortgage. Your LTV is roughly 33%. If you borrow another $100,000 with a HELOC, your LTV will be 67%. 

Your DTI is the amount of your income that you spend on debt payments every month, including loans, credit card minimum payments, your housing payment, and the loan you want. 

Here's how it speeds things up: A smaller loan means less risk for the lender. The lower the lender’s risk, the easier its decision. 

5. Gather documents

Anticipate the lender's needs by organizing all the required documents ahead of time. That way, when the lender requests a specific document, you’ll have it ready to go. Once the lender requests a document, submit it right away. 

These are the most commonly requested documents:

• Two of your most recent pay stubs

• Two of your most recent W-2s or 1099s

• Two of your most recent signed federal tax returns

• Two months' worth of bank statements

• Your current mortgage statement

• Your homeowners insurance policy, including the declarations page

• Two months' worth of investment account statements

• Government-issued ID

Here's how it speeds things up: The less time a lender spends waiting for documents, the more quickly it can move your application along. 

It may take some time for a HELOC to be funded. The good news is that you can help speed the process up.