Are There Closing Costs with a Home Equity Loan? A Detailed Guide

Taking out a home equity loan or home equity line of credit (HELOC) can be a great way to tap into your home’s equity for major expenses like home improvements, debt consolidation, medical bills, and more. But before you apply, it’s important to understand that these loans come with closing costs – fees charged to process, underwrite, and close the loan.

In this comprehensive guide we’ll break down exactly what closing costs you can expect with a home equity loan or HELOC, typical amounts for each fee tips for reducing costs, and whether it’s possible to get a no closing cost home equity loan.

What Are Home Equity Loan Closing Costs?

When you take out a home equity loan, you can expect to pay closing costs of 2-5% of the loan amount. On a $50,000 home equity loan, that’s $1,000 to $2,500 in fees.

Closing costs on home equity loans typically include

• Origination fees 05-1% of the loan amount, charged by the lender to underwrite and process the loan

• Appraisal fee: $300-$600 to have a third-party appraiser determine your home’s current value.

• Credit report fee: $20-$50 per borrower to check credit.

• Attorney fees: 0.5-1% of the loan amount for an attorney to review closing docs (required in some states).

• Recording fees: $20-$150 to file the loan with local authorities.

• Title fees: $75-$500 for title search and lender’s title insurance to check for liens.

• Prepaid interest: Interest accrued from when you close until your first payment.

Some lenders also charge application fees, document preparation fees, underwriting fees and other administrative costs that get bundled into your closing costs.

Pro Tip: Shop around and compare quotes from multiple lenders. Closing cost amounts can vary significantly.

What Are HELOC Closing Costs?

HELOC closing costs are generally 1-5% of the credit limit. On a $50,000 HELOC, expect around $500-$2,500 in total fees. Some common HELOC closing costs include:

• Origination fee: Same as a home equity loan, around 0.5-1% of the credit limit.

• Appraisal fee: Same as a home equity loan, around $300-$600.

• Credit report fee: Same as a home equity loan, around $20-$50 per borrower.

• Attorney fees: Same as a home equity loan if your state requires attorney review of loan documents.

• Annual fee: $25-$250 charged yearly to keep the HELOC open.

• Draw fees: $5-$15 every time you use the HELOC.

• Inactivity fees: $15-$50 if you don’t use the HELOC for a period of time.

Key Difference: HELOCs tend to have lower upfront closing costs, but more ongoing maintenance fees like annual, inactivity and draw fees.

Breakdown of Typical Home Equity Loan Closing Costs

To give you an idea of the full range of closing costs with a home equity loan, here’s a detailed breakdown using a $50,000 loan amount:

As you can see, closing costs can vary significantly by lender. That’s why it pays to shop around and compare quotes.

Breakdown of Typical HELOC Closing Costs

Similarly, here is an estimate of closing costs for a $50,000 HELOC:

Key Takeaway: While HELOCs tend to have lower upfront closing costs, you’ll also pay recurring annual, inactivity, and draw fees after opening the line of credit.

4 Tips for Reducing Home Equity Loan Closing Costs

Here are some proven strategies for reducing closing costs on a home equity loan or HELOC:

1. Improve your credit score

Borrowers with higher credit scores qualify for lower interest rates, which gives you more leverage to negotiate lower fees. Pay down debts and maintain on-time payments to boost your score.

2. Ask about lender discounts

Many lenders offer fee discounts for existing customers. See if your bank or credit union offers home equity loan discounts.

3. Shop around and negotiate

Compare quotes from multiple lenders. Use competing offers to negotiate lower fees with your chosen lender.

4. Weigh rate vs. fees

Lenders may offer a higher rate in exchange for lower fees. Make sure the trade-off makes long-term financial sense.

Are No Closing Cost Home Equity Loans Available?

Some lenders offer “no closing cost” home equity loans and HELOCs. The catch? You’ll pay a higher interest rate, usually around 0.25% to 0.5% higher than the lender’s standard rates.

Over the life of the loan, the extra interest you pay often outweighs the closing cost savings. Run the numbers carefully and compare options.

No closing cost loans make the most sense if:

• You plan to pay off the home equity loan quickly (2-3 years).
• Your loan amount is relatively small.
• You value simplicity over saving money overall.

The Bottom Line

While home equity loans and HELOCs provide easy access to your home’s equity, they aren’t free money. Make sure to budget for closing costs ranging from 2% to 5% of your loan or credit limit when applying.

Shopping around for quotes and negotiating with lenders can help lower your upfront fees. And be cautious of no closing cost offers – they usually carry higher interest rates that can cost more in the long run.

Understanding all the costs involved will help set realistic expectations when tapping into your home equity. With some savvy shopping and negotiation, you can land a competitive home equity loan or HELOC that fits your budget.