A HELOC can serve as an emergency fund, help you remodel your home, or pay for college. Whether you need the funds fast or you want them ‘just in case,’ many lenders offer this program. What differs from lender to lender and even between borrowers is the
time to approval. In a perfect world, you can close in a matter of 2 weeks. In a not-so-perfect world, it could take 4-6 weeks.
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What’s the secret to a faster closing? Read on and we’ll let you in on it.
High Credit ScoresWork Magic
You need one thing if you want a HELOC approved fast – a high credit score. Your score lets a lender know your level of financial responsibility. A high score means you pay your bills on time and don’t overextend yourself. In the eyes of the lender, you are a good risk.
A good risk means
less documentation required. The less paperwork you must provide, the quicker a lender can close your loan.
Without perfect credit, expect a lender to ask for a quite a bit of paperwork. Initially, at a minimum, you’ll need:
- Paystubs covering the last month of employment
- W-2s for the last 2 years
- Last 2 months of asset statements
- Most recent mortgage statement
The underwriter will review these items and decide what else they need. As they process your loan, they may ask for further documents. The quicker you supply the documents, the faster the process.
How You Can Help
What if you don’t have a great credit score? Work on fixing it before you apply for a HELOC. This will help your approval go faster. It can also help your rate and fees. HELOCs are not often expensive, but the more risk you pose to the lender, the more the loan will cost.
If you know you have a low credit score, find out why. Request a copy of your credit reports from
www.annualcreditreport.com. You are entitled to a report from each bureau once per year. You can order all three at once or spread them out throughout the year.
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Go over the reports and determine what you can fix:
- Do you have late payments? Bring all accounts current and continue making your payments on time.
- Are your outstanding balances high compared to your total available credit? Pay your balances down as much as you can. It’s best if you pay them off, but even lowering the balances can help.
- Do you have a recent bankruptcy? Wait at least 2 years before applying for a HELOC for the best rates and closing times.
- Is there incorrect information reporting? Get in contact with the credit bureau reporting the information and get it corrected.
It may take a few months to a year to improve your credit score, but it’s worth the wait. Once your score improves, lenders won’t see you as a risky borrower. You’ll then have a better chance at a quicker closing and better terms.
Your Home Value Plays a Role
A large part of the HELOC process is out of your hands. It depends on your home’s value. The higher the value, the more equity you have. You’ll want to know the value of your home before trying to get a HELOC. Your lender can run an automatic valuation on your home to determine an estimated value. This doesn’t replace the appraisal the lender will need, but you’ll have a good idea of what you can obtain. Most lenders allow an LTV of up to 85% on a home equity line of credit. The lower the LTV, though, the quicker the lender can close the loan.
It all comes down to how risky you are to a lender. The lower your credit score or the lower the value of your home is, the higher your risk. Do what you can to make yourself look as attractive as possible for a lender. Next, make sure you stay in contact with the lender. When they ask for something, supply it right away. You should get your HELOC closed within a matter of a few weeks if everything goes right.
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