If you put less than 20% down on your home, you probably lack sufficient equity to obtain a home equity line of credit immediately after purchase.
It’s every homeowner’s worst nightmare: You move into your dream home and then suddenly, the HVAC goes out and you’re getting estimates for $10,000. Now, you’re strapped for cash and wondering, “How soon can you get a home equity line of credit (HELOC) after purchase?”
The good news is you won’t have to wait too long. “There is no waiting period,” says Sarah DeFlorio, vice president of Mortgage Banking at William Raveis Mortgage. “You can apply for a HELOC immediately upon purchasing, though different lenders have different policies. For example, one of our banks will not allow you to apply until the mortgage or deed has been recorded with the city or town municipality.”
Depending on the lender, you can usually secure a HELOC within 30 to 45 days after the purchase. This guide will walk you through securing a HELOC after a home purchase.
Timeline for Getting a HELOC After Purchasing a Home
Although the specific timeline for getting a HELOC for a newly purchased home differs from lender to lender, there are a few common steps that every homeowner must follow.
Put At Least 20% Down
If you want a HELOC shortly after purchasing a home, you’ll want your combined loan-to-value (CLTV) ratio below 85% to increase your approval odds. A 20% down payment should put you in good standing with most HELOC lenders, depending on how much you want to take out.
Your CLTV ratio is calculated by adding your mortgage balance and the amount you want to borrow, then dividing it by your home’s value. Here’s an example:
Morgan’s home is worth $500,000 and she’s seeking a $20,000 HELOC. If she put down 20%, that would be $100,000 so she’d have $400,000 left on her mortgage.
$400,000 mortgage balance + $20,000 HELOC = $420,000
$420,000 divided by $500,000 = 0.84 or 84% (you take the answer and multiply it by 100 to get your percentage).
In this example, Morgan would likely be approved for the HELOC.
Apply for and Close on the HELOC
This is pretty self-explanatory. After ensuring you meet the lender’s eligibility criteria, fill out the necessary paperwork. Keep in mind that this process can take anywhere from a week to two months, depending on your lender, and may require another appraisal, even if one was done recently.
You’ll also incur closing costs.
RELATED: How Long Does it Take to Get a HELOC?
Withdraw Money from the HELOC
Once approved, you can withdraw money from the HELOC once it hits your account. The HELOC is divided into two parts: the draw and repayment periods. During the draw period, which normally lasts around 10 years, you can withdraw the money as needed, but you’ll have to make small payments on any withdrawn funds plus interest.
When the repayment period begins, you’ll have to pay back the balance on whatever you withdrew plus interest. Most lenders will not charge you for leaving money in the credit line, though some may issue a penalty if you don’t withdraw the full amount.
Conclusion
In most cases, there’s no waiting period between closing on a house and applying for a HELOC, but there are a few things you should know:
- Your CLTV ratio must be below 85%, so put at least 20% down
- The application process can take up to two months
- You’ll have to pay closing costs (again)
- Your home secures HELOCs
- You’ll have to pay the principal balance plus interest
Why You Should Trust Us
Benzinga has offered investment and mortgage advice to more than one million people. Our experts include financial professionals and homeowners, such as Anthony O’Reilly, the writer of this piece. Anthony is a former journalist who has won awards for his coverage of the New York City economy. He has navigated tricky real estate markets in New York, Northern Virginia and North Carolina.
For this story, we worked with Sarah DeFlorio, vice president of Mortgage Banking at William Raveis Mortgage, a Northeast-based mortgage lender and broker.
FAQ
Can I get a HELOC after six months?
Yes, you can usually get a HELOC after six months as long as you have enough equity in your home and your combined loan-to-value (CLTV) ratio is below 85%.
How much equity do I need in my home to qualify for a HELOC?
You’ll need at least 20% equity in your home to qualify for a HELOC.
How long does it take to get approved for a HELOC after buying a home?
Getting approval for a HELOC takes two to eight weeks. Plan ahead so you can access the funds when you need them.
Sources
- Sarah DeFlorio, vice president of Mortgage Banking at William Raveis Mortgage
About Anthony O'Reilly
Anthony O’Reilly is an updates editor for Benzinga. He’s won numerous journalism awards for his coverage of the New York City economy and Long Island school district budgets.