How quickly can you get a home equity loan after buying your home?
Right now, home equity levels are high for many homeowners across the nation. According to a recent Black Knight report, the average mortgage holder currently has about $199,000 in usable equity available to them.
There are numerous factors that have contributed to this — including a shortage in available home inventory and increased demand due to low mortgage rates during the pandemic. In turn, this is a great time to borrow against your home equity if you need to — and at a lower rate compared to credit cards or other loan products.
If you want to take advantage of your home equity, there are a few different options for doing so, including home equity loans, home equity lines of credit (HELOCs) and cash-out refinances. But if you're a new homeowner, how quickly can you tap into your home's equity — and what options do you have?
Learn more about your home equity options here now.
How quickly can you get a home equity loan after buying your home?
If you just bought your home and want to tap into your equity, here's when you may be able to do so.
When can you take out a HELOC?
A home equity line of credit (HELOC) is one home equity loan option you have after you purchase a home. A HELOC works much like a revolving line of credit but it uses your home as collateral. This type of home equity loan allows you to borrow funds up to a pre-approved limit (typically up to 80% of the equity in your home) and pay the money back after a certain time.
HELOCs are popular because they provide the flexibility of accessing funds during the draw period. That makes them a good option for homeowners who will have varying financial needs over time or those who don't want a lump sum loan.
So when can you borrow money with a HELOC? Well, it generally depends on the lender. While you can technically take out a HELOC as soon as you purchase your home, many lenders require you to own your home for at least a few months before you can qualify. And, you'll also need to meet the lender requirements, including the minimum home equity requirement, to be approved — which is also likely to affect the timeline for when you can borrow against your home equity.
Find out the home equity loan terms you may qualify for here now.
When can you take out a home equity loan?
A home equity loan works like a second mortgage and provides you with a lump sum of money based on the equity you've built in your home. Unlike a HELOC, a home equity loan is a one-time borrowing arrangement with a fixed interest rate and fixed monthly payments. You can use a home equity loan for any number of purposes, but's ideal for projects with a specific cost, like a kitchen remodel or debt consolidation.
In general, home equity loans can be pursued shortly after purchasing a home, often within the first year — but each lender has unique requirements for approval. Your credit score and equity in the home will still play a significant role in securing favorable terms, and most lenders will require you to have at least 15% to 20% equity in your home before you're approved.
When can you take out a cash-out refinance?
A cash-out refinance differs from HELOCs and home equity loans. Rather than a second mortgage, a cash-out refinance replaces your existing mortgage with a new one that has a higher principal balance. The difference between the old and new mortgage amounts is taken as cash, which you can use for various purposes. This option allows you to take advantage of potentially lower interest rates on the new mortgage.
As with the other home equity options, the timeline for getting a cash-out refinance is highly dependent on the lender. However, a cash-out refinance is typically an option after you've gained substantial equity in your home, which generally happens after owning it for a few years.
It's worth noting that cash-out refinances make the most sense to use if mortgage interest rates have dropped lower than when you first obtained your mortgage. Otherwise, you are trading in your low mortgage rate for a new loan with a higher rate, meaning you're paying more overall for your loan.
Explore your refinancing options here now to learn more.
The bottom line
Home equity loans, HELOCs and cash-out refinances can all be viable solutions for harnessing the value of your home, and in certain cases, you may be able to access them just a few months after closing. But the decision to tap into your home's equity should be made carefully — and at the right time. Be sure to weigh your financial goals, your home equity loan options and other factors before making any decisions.
