The Fastest Ways To Cash Out Your Home Equity
If you’re in a cash crunch and need to tap some equity in your home quickly, a home equity line of credit or home equity loan is typically the fastest path to funding. A cash-out refinance is another popular choice, but it tends to take longer to convert home equity into cash.
Each of these options allows you to cash out home equity, but there are important differences you should know to help you choose the option that will put money in your bank account sooner than later.
Fastest equity tapping loan options at a glance
|Type of loan||Typical time from application to cash in hand|
|Home equity loan||Two to four weeks|
|Home equity line of credit (HELOC)||Two to six weeks|
|Cash-out refinance||Six to eight weeks|
Overview of options for cashing out your home equity
The most common options for tapping equity in your home are a home equity loan, HELOC or cash-out refinance. Here’s a brief explanation of the basic features of each.
Home equity loan
A home equity loan is an installment loan based on your home’s equity. Often called second mortgages, home equity loans have a fixed rate and monthly payment, and repayment terms range between five and 30 years. Borrowers can usually access up to 85% of their home’s value.
Home equity line of credit (HELOC)
A home equity line of credit (HELOC) is a credit line based on your home equity. Interest rates are variable, and you can access funds and pay the balance off as needed (similar to a credit card) within a predetermined time frame, usually 10 years.
When comparing a HELOC versus home equity loan or cash-out refinance, HELOCs can be more flexible. You only pay on the amount of the credit line you access, and the initial payments are typically interest-only, making them much smaller than other home equity products. HELOCs can be appealing to borrowers looking for low payments upfront or those who want flexibility in accessing their funds.
A cash-out refinance replaces your current mortgage with a new loan at a higher amount than what you currently owe. The new mortgage pays off the existing loan balance, and you receive the difference in one lump sum.
You have three different cash-out refinance programs to choose from:
Conventional cash-out refinance. The conventional cash-out refinance is popular because no mortgage insurance is required when you borrow 80% or less of your home’s value. If you have a lot of equity, you may qualify for an appraisal waiver, which saves you time resulting in a faster path to closing.
FHA cash-out refinance. An FHA cash-out refinance is insured by the Federal Housing Administration (FHA), which allows borrowers with credit scores as low as 500 to tap equity. The drawback: You’ll pay expensive FHA mortgage insurance regardless of how much equity you have.
VA cash-out refinance. Military veterans may be eligible for a VA cash-out refinance which allows them to borrow up to 90% of their home’s value. Although no mortgage insurance is required, VA funding fees are required that add to your total closing costs.
How fast can you close on a home equity loan?
Generally, the home equity loan process can take two to four weeks. The steps vary by lender but usually include applying for the loan, verifying your assets and income and underwriting the loan. Most home equity loans have a three-day window after the closing called the “right of rescission period,” during which you can cancel the loan for any reason.
Things that could slow down the home equity loan process
A low credit score. Although some home equity lenders offer loans with scores as low as 620, you may be restricted to borrowing less of your home’s value if your score is below 680.
A high DTI ratio. Lenders divide your total debt, including your mortgage payment by your pre-tax income to calculate your debt-to-income (DTI) ratio. The DTI ratio requirements for home equity loans are usually more strict than cash-out refinances, which can make qualifying more difficult.
A lower-than-expected appraised value. Home equity lenders don’t typically allow you to borrow more than 85% of your home’s value. A low appraisal could reduce how much you can borrow, forcing the lender to delay your closing to allow you time to decide if the loan still makes financial sense.
LendingTree’s home equity loan calculator can help you calculate how much you may be able to borrow.
How fast can you close on a HELOC?
Getting a home equity line of credit typically takes two to six weeks from application to closing, but the exact time frame varies by lender. HELOCs also have a three-day right of rescission or cancellation period after closing.
Some HELOC lenders may not require a home appraisal and instead use a computer-generated value called an automated valuation model (AVM). Eliminating a full appraisal can help ensure the fastest HELOC closing.
Things that could slow down the HELOC loan process
A low credit score, a high DTI ratio or a low appraised value. Like a home equity loan, a HELOC is a second mortgage, with more strict qualifying requirements than a cash-out refinance. The same things that delay a home equity loan may add extra days to your wait time to get cash from your home’s equity.
No banking relationship with the lender. HELOCs are popular products with banks and credit unions, and they often offer you better terms if you already have other bank accounts with them like checking or savings accounts. In order to get those perks, you may be required to open up an account and deposit funds prior to you receiving your funds.
How fast can you close on a cash-out refinance?
Cash-out refinances can take around 45 to 60 days to close; however, the exact time frame depends on the loan type and lender. The refinance process is similar to taking out a purchase mortgage; you’ll need to provide details about your income and assets, and the lender will assess the home’s value to determine the loan amount.
Things that slow down the cash-out refinance process
Home value problems. If your home’s appraised value comes in low, you may not qualify for a cash-out refinance, or you may qualify for a much lower amount than expected. In some cases, you can dispute the value and ask the appraiser to review additional information you believe justifies a higher value.
Debt-to-income issues. Lenders divide your total debt, including your mortgage payment by your pre-tax income to calculate your DTI ratio. Because you’re taking out a larger loan, you may run into qualifying problems if your DTI ratio is too high.
2023 update: More expensive cash-out rates could increase your DTI ratio>
Starting in May 2023, conventional lenders are required to charge higher fees on cash-out refinances. Those fees are typically passed on to consumers in the form of higher interest rates, resulting in a higher monthly payment and DTI ratio.
If you’re ready to explore a cash-out refinance, LendingTree’s cash-out refinance calculator can estimate your loan amount and monthly payment.
Make sure you qualify for the fastest cash out home equity loans
The best way to ensure a speedy turn time is to make sure you qualify for the type of equity-tapping loan you’re interested in. Use the table below to determine which option is the best based on your credit scores, DTI ratio and loan-to-value (LTV) ratio.
|Home equity loan||→ Must have enough home equity (15% minimum) → Must meet LTV ratio requirements (usually capped at 85%) |
→ Must meet your lender’s minimum credit score (often 620 or higher)
→ Must meet your lender’s DTI ratio maximums
→ Closing costs equal to between 2% and 5% of the loan amount
|Home equity line of credit (HELOC)||→ Must have at least 15% equity in your home |
→ Must meet LTV ratio maximums (usually capped at 85%)
→ Must meet credit score requirements (typically 620 or higher)
→ Must meet DTI ratio maximums
→ Close out and yearly maintenance fees often apply
|Cash-out refinance||→ Must have at least 20% equity in your home |
→ Must not exceed program LTV ratio requirements (80% to 90%, depending on the loan)
→ Must meet your lender’s minimum credit score
→ Must not exceed program debt-to-income (DTI) requirements (41% to 50%, depending on the loan)
→ Closing costs equal to between 2% and 6% of the loan amount
Reverse mortgage: A cash out home equity option for seniors
A reverse mortgage is a way to cash out home equity for homeowners 62 and older. If you meet the age requirements and have a significant amount of equity built up, you can convert the home equity into cash payments.
Reverse mortgages can take 30 to 45 days or more, depending on your situation. Lenders will need to confirm your financial information, property value and all other transaction details. Additionally, you must complete reverse mortgage counseling with a HUD-approved housing counselor.
In order to qualify, you:
→ Must be at least 62 years old
→ Must own the home outright or have at least 50% equity
→ Must live in the house for most of the year
→ Must be current on federal debts and taxes
→ Must be able to pay property taxes, homeowners insurance and home maintenance costs
→ Must attend reverse mortgage counseling from a counselor approved by the Department of Housing and Urban Development (HUD)
Are you interested in exploring a reverse mortgage? LendingTree’s reverse mortgage calculator can help you see what you might qualify for.
Alternatives to tapping home equity to get cash quickly
One major drawback to borrowing money against your home equity is the risk that you could lose your home if money gets tight, you can’t afford your payment and the lender forecloses. If you’d prefer not to secure another loan against your home or don’t have enough equity in your home for the options above but need money sooner than later, consider the following:
Personal loans are fixed-rate installment loans consumers can use for any reason. Borrowing with a personal loan may be faster than tapping into home equity — you could get approved within hours of applying and sometimes receive the funds on the same day. They’re also less risky since most personal loans are unsecured, meaning you won’t have to use your home as collateral.
However, interest rates on personal loans are generally much higher than on home equity products. And only borrowers with the best credit scores qualify for competitive rates.
Repayment terms are usually shorter than home equity financing — averaging between two and seven years.
Credit cards can be an easy and fast way to access funds. If you’re applying for a new card, you can often get same-day approval, which beats out even the fastest HELOC closing at two weeks. And if you qualify, you could get access to a high credit limit. However, using a credit card to fund a large purchase or ongoing expense is a costly way to borrow — unless you pay off your monthly balance — with average APRs in the double digits.