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.
Taking out a home equity loan can seem complicated, with all the paperwork, fees, and waiting involved But breaking down the home equity loan closing process into clear, simple steps makes it much more manageable. In this article, I’ll walk you through what to expect so you can close on your home equity loan with confidence
Overview of the Home Equity Loan Closing Process
The home equity loan closing process can generally be broken down into four main phases:
- Application Phase
- Processing and Underwriting Phase
- Closing Phase
- Funding Phase
The timeline varies by lender but you can expect the entire process to take around 6-8 weeks from application to funding. Here’s what happens during each phase
Application Phase (About 1-2 Weeks)
This first phase is when you submit your initial home equity loan application either online over the phone, or in person. The lender will review your basic information, ask for any required documents, and provide you with loan estimates outlining projected terms, rates, and costs. Once submitted, they will confirm your initial eligibility.
Processing and Underwriting Phase (About 4 Weeks)
During this crucial phase, the lender verifies your financial information, orders the home appraisal, processes your full documentation, calculates your final loan terms, and decides whether to approve your home equity loan.
Key steps include:
- Verifying income, assets, debts, credit history, and employment
- Ordering a home appraisal to determine property value
- Conducting a title search to identify liens or other claims on the home
- Calculating loan-to-value ratio based on home equity
- Determining interest rate, monthly payment, and total costs
- Making the final loan decision
Closing Phase (About 1-2 Weeks)
Once approved, your loan enters the closing or settlement phase. This involves signing the final loan documents and paying closing fees and costs.
Key steps include:
- Receiving a Closing Disclosure outlining final terms 3 days before closing
- Reviewing documents with your attorney (required in some states)
- Signing documents in person with a notary or attorney
- Paying your closing costs and fees (or rolling them into the loan)
Funding Phase (1-5 Days)
The final phase is when the lender disperses your loan funds into your designated bank account, usually within 1-5 business days of closing. Then you can put your home equity funds to use!
Now let’s dive into the closing process details and timeline.
Details of the Home Equity Loan Closing Process
Closing on a home equity loan involves gathering documents, signing paperwork, paying fees, and finalizing legal details. Here are the key steps in the home equity loan closing process and what to expect:
1. Receive Closing Disclosure (3 Days Before Closing)
Your lender must provide your official Closing Disclosure at least 3 business days before your closing date. This detailed form outlines the final loan terms, projected payments, interest rate, and total closing costs.
Review it closely and ask your lender any questions. Only proceed if you fully understand and agree to the loan terms and costs.
2. Review Loan Documents with Attorney (If Required)
In some states, you may be required to review the closing documents with a real estate attorney or settlement agent. They can explain the loan terms and fees and ensure everything is in order before closing.
If not required, consider consulting an attorney anyway to protect your interests. You will pay attorney fees as part of your closing costs.
3. Gather Required Documents
Compile any other needed paperwork like bank statements, tax returns, homeowners insurance forms, and identification for notarization. Your real estate attorney or lender will provide a list of requirements. Having everything ready avoids delays.
4. Sign Documents at Closing Meeting
At your scheduled closing meeting, you’ll formally sign the loan documents in person with a notary public or attorney. This legally binds you to the loan terms.
The closing usually takes place at your home, lender’s office, title company, or attorney’s office. All borrowers listed on the mortgage must be present.
5. Pay Closing Costs and Fees
Closing costs average 2-6% of your total loan amount. These fees pay for processing, underwriting, titling, and legal services. Costs can either be paid upfront or rolled into your loan principal.
Typical fees include origination fees, application fees, appraisal fees, credit check fees, title fees, recording fees, and more. Your Closing Disclosure itemizes all costs.
6. Receive Your Loan Funds
Once closed, your lender sends your loan funds to your designated bank account, usually within 1-5 business days. Congrats, you can now put your home equity funds to use as planned!
Tips for a Smooth Home Equity Loan Closing Process
Follow these tips to help your home equity loan closing go as smoothly as possible:
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Provide documents quickly: Respond promptly to lender document requests to avoid processing delays.
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Review documents thoroughly: Don’t sign anything until you fully understand the terms. Ask questions!
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Compare fee estimates: Shop lenders and compare total closing cost estimates.
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Have funds ready: Closing costs are due when you sign. Know how you will pay them.
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Plan ahead: Schedule closings, inspections, and meetings well in advance.
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Keep communicating: Stay in touch with your lender about timelines and next steps.
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Be prepared: Make copies, organize paperwork, and arrange transportation to your closing.
With the right preparation, a clear understanding of what to expect, and good communication, you can close quickly and confidently. The home equity loan closing process is the final step to accessing funds, so you can focus on the exciting part – putting your equity to work!
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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.
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.
What are the Closing Costs on a Home Equity Loan?
Do home equity loans have closing costs?
Yes, home equity loans have closing costs. As with any mortgage loan, you’ll pay several closing costs when taking out a home equity loan or home equity line of credit (HELOC). You can expect to pay 2% – 6% of your total loan amount in closing costs for a home equity loan.
What is the home equity loan closing process?
The process can be broken down into clear steps and timelines: Start at the beginning: The home equity loan closing process is like the grand finale of a fireworks show – there’s plenty of anticipation and excitement. This is the stage where all the legal and financial aspects come together, and you officially seal the deal on your loan.
How long does it take to close a home equity loan?
Closing you loan (around 1-2 weeks). We’ll contact you to schedule your closing and then arrange for your loan funds to be sent to your accounts. You can help the process go smoothly by sharing requested information in a timely manner via our secure website. Once the processing period is complete, it is time to close on your home equity loan.
How do I Close a home loan?
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.