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Taking out a home equity loan can be a smart financial move. These loans allow homeowners to tap into their home equity to access cash for large purchases home improvements debt consolidation, and more. However, like any loan, home equity loans come with closing costs. Understanding these costs is key to determining if a home equity loan is the right financing option for you.
What are Closing Costs on a Home Equity Loan?
Closing costs refer to the various fees charged by lenders when originating a new home equity loan. These costs are typically between 2-5% of the total loan amount. For example, closing costs on a $50,000 home equity loan could range from $1,000 – $2,500. While closing costs can vary by lender, here are some common fees borrowers can expect to pay:
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Origination Fee – This covers the lender’s administrative costs for processing the loan. It ranges from 0.5-1% of the loan amount.
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Appraisal Fee – The lender will require an appraisal to determine the home’s value. This ensures the home can adequately collateralize the loan. Appraisal fees range from $300-$500.
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Credit Report Fee – The lender will pull your credit report to assess your creditworthiness This costs $25-$100 per report
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Title Search Fee – The lender must research the title history to verify you hold clear title to the home. This runs $100-$450.
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Title Insurance – This insures the lender against claims against the title. Figure 0.5-1% of the loan amount.
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Recording Fees – The lender must record the lien with local authorities. This runs $20-$100.
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Attorney Fees – Though not always required, attorney review helps ensure you understand the loan terms. Attorney fees range from $100-$300 per hour.
In total, you can expect to pay anywhere from $1,000 to $5,000 in closing costs on a $50,000 home equity loan. Closing costs are due at closing and cannot be financed into the loan. You’ll need to pay these fees out of pocket.
Can You Avoid Paying Closing Costs?
While unavoidable, there are a few ways to reduce or defer your closing costs:
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Shop Around – Get quotes from multiple lenders. Comparison shopping can help you find the lowest rates and fees.
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Negotiate – Don’t be afraid to ask lenders to waive or reduce certain fees. They may do so to win your business.
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Use a Lender Credit – Some lenders offer a lender credit, applying funds at closing to cover your costs.
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Finance into Loan – Ask if the lender can roll the closing costs into the loan amount. This defers rather than eliminates the fees.
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No-Closing Cost Loans – Some lenders offer no closing cost loans, eliminating upfront costs in exchange for a slightly higher rate.
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Lower Loan Amount – Since many fees are a percentage of the loan amount, borrow only what you need to reduce overall costs.
Are Closing Costs Worth It?
While closing costs can seem high, they may be worth it if the home equity loan allows you to achieve your financial goals. For example, closing costs of $2,500 on a $50,000 home improvement project loan may be acceptable if it allows you to increase your home value by $75,000.
However, make sure to consider:
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Your Financial Situation – factor closing costs into your budget and ensure you can afford them
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Loan Alternatives – compare to other lower cost options like cash-out refinancing
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Loan Term – closing costs are easier to absorb if spread over a longer loan term
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Your Plans – ensure you’ll remain in the home long enough for the loan to make sense
Tips for Minimizing Your Closing Costs
While you can’t completely avoid closing costs, here are some tips to help reduce your total fees:
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Only borrow what you need – a lower loan amount equates to lower overall fees
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Ask about discounts for existing customers if using current lender
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Opt for lower cost settlement services like title search vs. full title insurance
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Pay for your own appraisal if lender’s is too high
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See if lender offers discounted closing costs for autopay or direct deposit
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Buy down the interest rate using points if it lowers your long term costs
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Avoid high cost lenders and shop around for the best deal
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Ask lender to waive junk fees unlikely to directly benefit you
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See if loan qualifications allow you to pay some recurring costs over the loan term
The Bottom Line
Closing costs are a reality of home equity loans, running 2-5% of your total loan amount. While you can’t eliminate these fees completely, being an informed borrower can help minimize your total costs. Compare multiple lenders, negotiate for discounts, and only borrow what you need. This can help ensure you maximize value from your home equity loan.
What are home equity loan closing costs and fees?
The fees associated with home equity loans can vary significantly. For example, origination fees cost roughly 0.5-1 percent of the total loan amount. That means the origination fee on a $100,000 loan could cost anywhere from $500 to $1,000. There are also fixed costs, like an appraisal fee, title search fee and title insurance.
To give you an idea of what you might pay in home equity loan closing costs — helping you figure out the overall cost of your home equity loan — here’s a breakdown of the most common charges.
| Home Equity Loan Closing Cost | Potential Fee |
|---|---|
| Origination fees | 0.5-1% of the loan amount |
| Appraisal fees | $300–$450 |
| Credit report fee | $10–$100 |
| Legal fees | Flat hourly rate or % of the loan amount |
| Filing/notary fees | $20–$100 |
| Title insurance costs | .5-1% of purchase price |
| Title search fee | $100–$450 |
Potential cost: 0.5-1% of the loan amount
Some lenders charge an origination fee up front — an expense just to get the ball rolling on your application. Amounts vary by lender but may be either a flat fee or a percentage of the amount you borrow. If the latter, it can be as much as 1 percent of your home equity loan.
Potential cost: $300–$450
Before they’ll fund your loan, lenders may require that a home appraiser determine the value of your property. Your home serves as collateral to back the loan, and they want to make sure they have an accurate, up-to-date assessment of this key asset. Generally, home equity loan appraisal fees come in between $300 and $450.
Potential cost: $10–$100
As a part of any credit-based lending process, lenders check your credit score, doing a hard pull of your credit report. This typically incurs a fee between $10 and $100 per report.
Potential cost: Flat hourly rate (e.g., $100–$300) or percentage of overall loan (e.g., 0.5–1%)
This is one of those home equity loan fees that varies. Some states require that an attorney review your loan documents; others make it optional. Even when you don’t legally need this service, it’s a good idea to have a pro read and make sure that you fully understand the loan terms and that they dovetail with everything the lender originally told you. Many lawyers charge an hourly rate ($100–$300) to review loan papers, though some may have a flat fee. Figure on the legal fees comprising 0.5 to 1 percent of your loan.
Potential cost: $20–$100
Since it’s a lien on your property, a home equity loan has to be filed with your local county clerk’s office. And the agreement has to be properly witnessed and notarized. Again, this varies greatly among states: The cost of home equity loan processing with your local authorities generally runs from $20 to $100.
Potential cost: .5-1% of purchase price
Not all lenders will require that you, the homeowner, get title insurance for a home equity loan — especially if you already secured this coverage when you got your original mortgage. If they do, the title insurance costs vary depending on the type of coverage your lender mandates.
However, unless you’re dealing with the folks who financed your first mortgage, you probably will have to take out a lender’s title insurance policy (which protects them against any claims or liens on the home). These policies can range from $500 to $3,500 for home equity loans
Potential cost: $100–$450
Since the home is used as collateral for a home equity loan, lenders will arrange a title search to see if there are any liens or claims to the property from another entity. This fee is typically about $100 to $450, depending on your area.
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What are the Closing Costs on a Home Equity Loan?
FAQ
What is the downside of a home equity loan?
Does it cost anything for a home equity loan?
Are there closing costs with a HELOC?
Are there closing costs on a Discover home equity loan?
Do home equity loans have closing costs?
Yes, home equity loans have closing costs. As with any mortgage loan, you’ll pay several closing costs when taking out a home equity loan or home equity line of credit (HELOC). You can expect to pay 2% – 6% of your total loan amount in closing costs for a home equity loan.
How much does a home equity loan cost?
These costs typically range from **2% to 5%** of the total loan amount.For example, if you’re borrowing $100,000, closing costs could be between **$2,000 and $5,000**.
What is the most expensive closing cost on a home equity loan?
The most expensive closing cost on a home equity loan is typically the origination fee, which is often based on a percentage of the loan value. So the amount you’re borrowing can have a big impact on the upfront fees you’re likely to pay. Check your home equity loan options.
How do home equity loan fees work?
Home equity loan fees are often charged based on a percentage of your loan amount. The less you borrow, the less you’ll pay in closing costs. Avoid the temptation to use your home like an ATM — if you borrow more than you can afford to pay back, you could lose your home to foreclosure.