Home Equity Loan and HELOC Closing Process

A home equity line of credit (HELOC) and a home equity loan are similar because both allow borrowers to access the equity they’ve built in their homes. But the two have fundamental differences—a HELOC is similar to a credit card, allowing users to borrow money as needed. 

In contrast, home equity loans are more traditional, where borrowers get a lump sum. The closing process, however, is almost identical for both.

Here’s a step-by-step breakdown of the HELOC and home equity loan closing processes, including a list of needed documents, closing costs, and how to prepare.

How the home equity loan and HELOC closing process works

Suppose you’ve bought a house and have gone through the closing process. The HELOC and home equity loan closing processes are often similar. The main difference? This closing process is shorter and less complex. 

Generally, the loan process from application to closing takes two to six weeks. But once you meet with the lender to sign the paperwork, the loan should close within a week. If speed is a top priority, you can work with a lender specializing in fast financing. 

But before you close, you can expect to complete three steps:

1. The lender verifies the application and financial details. You apply for a HELOC or home equity loan during this stage. Most lenders make the process as simple as possible. The lender will confirm your income, mortgage, job, and credit score to ensure you’re an eligible buyer and the information you provided is accurate. Lenders might ask you to provide additional documentation during this process, so preparing as much as possible is wise.
2. The home appraisal occurs. The home appraisal is essential to the application process because it determines your home’s value, affecting how much you can borrow. Depending on your needs, the appraisal can be digital using artificial intelligence or in person with an appraiser. 
3. The lender prepares documents. Once everything is confirmed, appraised, and organized, it’s time to begin the next step and close the loan. 

The HELOC or home equity loan closing process will vary by lender, but it involves four common steps. 

1. Sign the paperwork 

The first step in the closing process is to sign the necessary paperwork. Signing often occurs in person with the lender, but remote closings are more popular now, especially with online lenders. 

Your lender schedules the closing and contacts you to set it up. Borrowers and co-applicants often need a valid ID and Social Security card. Double-check with your lender, which should provide a complete list of the necessary documents. 

The requirements vary by state, but lenders can often meet or send a notary to the homeowner’s home, office, or other selected location. There, the lender or notary collects the signatures or notarizes the paperwork. All homeowners need to be present for this step. If applicable, co-applicants need to be present too.

2. Pay the fees

The amount and type of closing fees vary by lender, but once you close on your loan, you’ll pay the fees outlined in your closing documents. Most lenders require borrowers to submit funds via wire transfer or certified check.

The list of potential closing fees is long. Still, it often includes the following:

• Origination fee
• Appraisal fee
• Title search fee
• Credit report fee

Understanding and preparing for the expenses before you close is wise. If you have questions, contact your lender.

3. Wait 3 days

You’ve signed the paperwork, but the process isn’t complete due to a federal rule called the Three Day Cancellation Rule, which states the day after you close marks the beginning of the rescission period. You can cancel your loan during this period if you change your mind. This time is often known as a “cooling off” period, lasting three business days. 

If you decide to cancel, you must notify your lender in writing before midnight on the third business day. You can’t inform your lender over the phone or in person. Once you cancel the loan, the lender has 20 days to return all associated fees, including origination and appraisal fees. 

4. Receive your funds

Once the rescission period ends, you’ll get your funds on the fourth business day. The closing process’s final part is the only element that differs between HELOCs and home equity loans. 

If you have a HELOC, you’ll have access to the funds as a line of credit throughout the draw period, but the lender won’t deposit the funds into an account. 

If you have a home equity loan, the lender will deposit the money into your selected account. 

Are there closing costs? 

Closing costs may apply for both types of funding. The borrower is often responsible for all fees associated with the closing costs. You’ll get a Truth in Lending disclosure form explaining the loan terms and listing expenses. 

The exact fees can vary by lender, but standard charges include:

• Origination fee
• Appraisal fee
• Credit check fee
• Title search fee
• Document preparation fee
• Recording fee
• Notary fee

In general, borrowers can expect to pay fees that equal 2% to 5% of the loan value. For example, if you have a loan or line of credit for $200,000, you can expect to pay between $4,000 and $10,000 in closing costs. 

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: Borrowers often must 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. The closing process will be smooth if you have everything 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. 

HELOC and home equity loan closing documents

When closing a home equity line of credit (HELOC) or home equity loan, borrowers are required to present various documents to ensure the process proceeds smoothly.

These documents are crucial for verifying the borrower’s financial situation, property value, and legal standing. Here is a comprehensive list of the documents typically required at closing:

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

It’s essential to prepare these documents in advance and review them for accuracy to avoid any delays during the closing process. 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.

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 some things can delay the process and prolong closing. 

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 have 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. If you do that, the process should be quick and straightforward.

FAQ

How long does a HELOC take to close?

A HELOC typically takes 30 to 45 days to close. The duration can vary based on several factors. It might take longer if your lender requires an appraisal of your property, or if they need to verify your provided documentation.

Despite these variables, you can generally expect the closing process for a HELOC to fall within this timeframe.

How long does does a HELOC take to fund after closing?

After the HELOC closing process is complete, the funds usually become accessible within a few days to a week. Keep in mind that this can vary based on the lender’s specific procedures.

Some lenders, for example, might have a mandatory waiting period before you can access the funds. It is always important to ask your lender about its funding timeline so you can plan accordingly.

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.