Home Equity Loan and HELOC Closing Process: What to Expect and How to Prepare

Home equity loans and lines of credit (HELOCs) both allow you to borrow against the equity in your home, but they work differently: A home equity loans provides a lump sum, while a HELOC lets you draw funds as needed.

Despite these differences, their closing processes share similarities. In this guide, we’ll walk you through the steps, required documents, closing costs, and how to prepare for each option.

Table of Contents

1. Home equity loan closing process
2. HELOC closing process
3. How to ensure a smooth closing
   1. HELOC and home equity loan closing documents
4. Common challenges and how to overcome them
5. FAQ
   1. How long does a HELOC take to close and fund?
   2. How long does a home equity loan take to close?

Home equity loan closing process

The home equity loan closing process tends to be straightforward and faster than a mortgage closing. Most borrowers can expect the process to take two to six weeks from application to closing, but signing the paperwork and finalizing the loan often happens within a week. Here’s what to expect:

1. Verification of final details

The lender begins by verifying your application and financial information. This includes confirming your income, credit score, employment, and mortgage details to determine your eligibility and the loan terms.

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Tip

Prepare documents, including recent pay stubs, tax returns, and proof of homeowners insurance, in advance to avoid delays.

2. Home appraisal

A home appraisal is crucial for determining your home’s current value and how much equity you can borrow. Depending on the lender, this appraisal might be conducted digitally using artificial intelligence or in person by a licensed appraiser.

3. Loan document preparation

Once your application is approved and the appraisal is complete, the lender will prepare the final loan documents. These outline your loan terms, repayment schedule, and any associated costs.

4. Closing and funding

The final steps include:

• Sign the paperwork: Borrowers and co-applicants sign the loan documents, often in person or via remote closing with a notary.
• Pay closing costs: Fees such as the appraisal, origination, and title search fees are due at closing. Borrowers typically pay via wire transfer or certified check.
• Get the loan funds: After the rescission period (explained below), the lender will deposit the lump sum into your designated account.

HELOC closing process

The closing process for a HELOC shares similarities with a home equity loan but has crucial differences, especially regarding how funds are disbursed. Here’s how it works:

1. Application and approval

As with a home equity loan, you’ll submit an application and provide financial documentation, including proof of income, credit history, and details about your home’s equity.

2. Home valuation

Lenders require a home appraisal to assess your property’s market value. This can be done through a traditional appraisal, a drive-by inspection, or automated valuation tools, depending on the lender.

3. Loan document preparation

Once your application is approved, the lender will finalize the loan terms and prepare your HELOC agreement. This includes details about your draw period, repayment terms, and interest rate structure.

4. Closing and funding

• Sign the paperwork: Like a home equity loan, you’ll sign the documents in person or remotely with a notary.
• Pay closing costs: Similar fees apply, such as appraisal and document preparation fees.
• Access your credit line: Unlike a home equity loan, HELOC funds are not deposited into your account. Instead, you’ll access the funds as needed during the draw period, typically via checks, a debit card, or online transfers.

Read More

No-Fee HELOCs

How to ensure a smooth closing for your HELOC or home equity loan

To ensure a smooth closing process, confirm everyone is present, and prepare your documents in advance.

• Gather your documents: Bring a valid form of identification, such as a driver’s license or passport and a Social Security card. Your lender will explain what you need.
• Prepare to get your funds: Your lender will walk you through this step. Set up your payment account before closing begins to ensure the lender can deposit the funds as soon as possible. 
• Get the necessary people: If you own the home and don’t have a co-applicant, you’re the only person who must be present. But other homeowners, such as a spouse or family member, must also be present. Co-applicants must be present, and every homeowner and co-applicant should bring the required documents. 

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Tip

Looking to close your HELOC fast? Choose lenders specializing in quick closings—many online options can approve and close HELOCs within a week. Have all necessary documents ready, such as proof of income and property appraisal reports, to avoid delays.”

HELOC and home equity loan closing documents

When closing a HELOC or home equity loan, be prepared to present several documents to verify your financial situation, property value, and legal standing.

Here is a comprehensive list of documents you may need:

1. Loan agreement or note: The primary contract between the borrower and the lender, outlining the loan terms, interest rate, repayment schedule, and any penalties for late payments.
2. Mortgage or deed of trust: Secures the loan against your home, effectively making it collateral for the loan.
3. Truth in Lending Disclosure (TIL): Outlines the loan’s terms, including the annual percentage rate (APR), finance charge, amount financed, and total payments over the life of the loan.
4. Closing disclosure: Provides a detailed breakdown of all the fees, charges, and credits associated with the loan closing.
5. Initial escrow statement: Outlines the payments that will be paid from your escrow account during the first year of your loan, including taxes and insurance.
6. Proof of homeowners insurance: Confirms that you have adequate insurance on your property, which is a requirement for closing.
7. Appraisal report: Provides an assessment of your home’s current market value.
8. Property title search and title insurance: Ensure that the title to your property is clear of any issues or liens and provide insurance protection against future claims.
9. Photo ID: A government-issued photo ID (such as a driver’s license or passport) is required to verify your identity.
10. Power of attorney (if applicable): If someone is signing on your behalf, a valid power of attorney document is needed.

Your lender or closing agent will provide a checklist of required documents and how to prepare for your specific situation. Ensuring that all paperwork is complete and accurate will contribute to a smooth and efficient closing.

Your lender may provide you with sample HELOC closing documents during the application process to help you prepare. (The Consumer Financial Protection Bureau provides a sample closing disclosure that includes notes to pay attention to.)

Can I be denied during the closing process?

It’s unlikely your lender will rescind your loan offer during the closing process. After all, you’ve completed the application, and it approved you for the loan. But the process can be delayed and closing prolonged. 

For example, if you don’t have the correct forms of identification or your co-applicant doesn’t attend the final meeting with the lender, you might need to reschedule, which can add days or weeks to closing. 

Follow the steps outlined in your paperwork, and ask questions about the parts you don’t understand, and the process should be quick and straightforward.

Common challenges during the closing process (and how to overcome them)

Closing on a home equity loan or HELOC is straightforward, but challenges can arise that delay or complicate the process. Being aware of potential obstacles can help you prepare and resolve issues. Here are common challenges and strategies to address them:

By anticipating these potential hurdles and taking proactive steps, you can navigate the closing process and minimize delays. If any issues arise, maintaining open communication with your lender is key to finding timely solutions.

FAQ

How long does a HELOC take to close and fund?

Typically, a HELOC takes 30 to 45 days to close, though some lenders may expedite the process. If speed is a priority, ask your lender whether it offers faster options—some online lenders can close HELOCs in as little as a week. After closing, it can take three to seven days to access your funds. However, funding times vary depending on lender procedures and state requirements

How long does a home equity loan take to close?

As with a HELOC, the time it takes to close a home equity loan may vary. On average, it typically takes somewhere between 2 to 4 weeks. This timeline can be influenced by issues such as property appraisals, document verification, and individual lender procedures.

Keep in mind that this timeline could be extended if there are complications or additional requirements from your lender.

In summary, both HELOCs and home equity loans have a closing process which can take up to a few weeks. However, once these processes are complete, funds are typically made available fairly quickly. Always remember to consult with your lender to understand its specific procedures and expectations.