What are the closing costs for a home equity loan?

You can leverage your home equity to fund large projects and expenses by taking out a home equity loan (HELOC), or a home equity credit line (HELOC). Borrowing from your home equity might be a good option if you are planning a major renovation or other expense, and don’t have the cash to pay.

Be aware that home equity loans and line of credit have high fees. You will need to account for these costs before you move forward with this financing option. The average closing cost for a home equity loan, or line of credit, can be between 2 and 5 percent of the loan amount.

What are the closing costs and fees for a home equity loan or HELOC?

There are some common features between HELOCs and home equity loans, including the fees that you may see at closing. Some lenders offer HELOCs with no closing costs. However, your lender may require you to pay a fee for these costs or reimburse you if your HELOC is not paid off within a specified time.

Origination Fee: Some lenders may charge an initial fee. Lenders may charge a flat fee, or a percentage of what you borrow.
Appraisal fee Lenders might require that a home appraisal be done to determine the property’s value. This fee is generally between $300 and $450.
Credit report fee Lenders will check your credit score, and report as part of any credit-based loan process. This usually results in a credit report fee of between $10 and $100.
Insurance costs These may include flood insurance costs, if you don’t have enough flood insurance, and property insurance and title insurance.
Document preparation and filing fees:Document preparation is subject to fees. Professionals such as lawyers and notaries are required to review the paperwork. A county recording fee, for example, could be as high as $50.
Title fees Because the home serves as collateral for a loan or home equity mortgage, lenders may arrange a title search in order to determine if any claims or liens are attached to the property. This fee can range from $100 to $450 depending on where you live.
Taxes Depending on the requirements of your lender or local laws, you might need to pay taxes. There are different costs; depending on where you live, taxes may be required to cover between 1 and 3 percent of the loan amount.
Points: To lower your interest rate, some lenders will let you pay “points”, which are up-front fees. Each point equals 1 percent of the amount you borrowed. HELOCs are not allowed to have points.

Additional HELOC expenses

Other HELOC-specific costs that may be incurred are not included in closing costs. These fees may vary depending on the lender , while some lenders may not charge them at any time

Annual fees This fee is charged for each year that an account has been open. This fee applies regardless of whether or not you draw from the credit line during the year.
Transaction Fee: While not all lenders charge this fee If your lender does, you will be charged a fee each time you draw from the HELOC.
Inactivity Fee: HELOCs with no transactions in a specified time period might be subject to an inactivity charge.
Early cancellation fee: The lender may charge a fee if you cancel your agreement before the term ends.

Ask your lender questions about HELOC costs and other loan documents that may affect the amount you end up paying.

How to lower your home equity loan closing cost

Closing costs can be costly , but there are steps that you can take to lower these costs with your home equity loan.

Lower your debt-to income ratio. Paying off other consumer debt like unsecured credit cards will put you in a better position to get more closing costs options. A lender may offer to cover your closing costs in addition to the loan principal if you have lower debt and a better credit score. This will ensure that you don’t have any immediate out-of pocket costs.
Compare closing costs between lenders to find the best home equity loan deal for you.
Talk to lenders. Do not be afraid to negotiate on fees and costs for your home equity loan. These fees are usually more flexible than the lender may admit. Consider working with another lender if a lender refuses to negotiate on closing fees.
There may be low or no closing fees offered by lenders. This is why it’s so important to compare closing cost and rates when comparing lenders. This will help you pay less for you if you plan ahead and take the time to do so.

The bottom line

You can use a home equity calculator to determine if borrowing against your home equity might be right for you. This can help you understand how the above fees might impact your total borrowing costs.

Ask for a detailed list of closing costs if you are ready to work with a lender. You should verify that the list includes any verbal agreements regarding closing cost and that they are included in the loan agreement. Before signing any paperwork, make sure to check with your lender if there is something missing.

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