No Closing Cost Home Equity Loans: Everything You Need To Know

Taking out a home equity loan can be a great way to tap into your home’s equity for large expenses like home improvements or debt consolidation. But the closing costs associated with home equity loans can sometimes be a barrier for borrowers. That’s where no closing cost home equity loans come in.

In this article. I’ll explain everything you need to know about no closing cost home equity loans including

• What are no closing cost home equity loans?
• How do they work?
• What are the pros and cons?
• Where to find the best no closing cost home equity loan rates
• Alternatives to consider
• FAQs

Let’s dive in!

What Are No Closing Cost Home Equity Loans?

A no closing cost home equity loan is exactly what it sounds like – a home equity loan that does not require you to pay any closing costs

Closing costs are fees charged by the lender to process and close the loan. They can include origination fees, application fees, attorneys fees, title fees, recording fees, appraisal fees, and more. These costs often total 2-5% of the loan amount

With a no closing cost home equity loan, the lender covers these fees so the borrower pays $0 at closing. This can make these loans much more affordable and accessible for many homeowners.

How Do No Closing Cost Home Equity Loans Work?

While you pay no closing costs upfront with these loans, the lender still has to cover their costs somehow. There are a few ways lenders can offer no closing cost home equity loans:

• Higher interest rate – The lender may charge a higher interest rate on the loan to recoup the closing costs over the life of the loan. This increases your total interest costs over time.

• Lender credit – The lender may offer a lender credit, which is a credit they give you to cover closing costs. This essentially means they front the costs but you still pay for them through your interest rate.

• Rolled into loan amount – The closing costs may be rolled into the total loan amount, meaning you finance them and pay interest on them over the loan repayment term.

While you avoid high upfront closing costs, you’ll still pay these fees through the loan itself in some way. But this can help make the loan more affordable.

Pros and Cons of No Closing Cost Home Equity Loans

Pros

• Low upfront costs – You avoid thousands in closing costs at the time of closing. This helps if you don’t have the cash on hand to cover these fees.

• More accessible – Without high upfront costs, these loans may be accessible to more borrowers. This includes low-income borrowers or those with limited funds.

• Can tap equity easily – Avoiding closing costs makes it easier to tap into your home’s equity, even for smaller loan amounts.

Cons

• Higher costs long-term – While you avoid upfront fees, you’ll pay higher total interest over the loan term through a higher rate or financed fees.

• Prepayment penalties – Some lenders may charge a penalty if you pay off the loan early to recoup closing costs.

• Qualification challenges – You still have to qualify for the loan itself, which can be difficult with lower credit scores.

Overall, no closing cost home equity loans remove the barrier of high upfront costs. But you have to weigh the pros and cons to decide if paying higher costs long-term is worth the tradeoff.

Where To Find The Best No Closing Cost Home Equity Loan Rates

Most major lenders will offer some version of no closing cost home equity loans. Here are a few top options for the best rates:

• Navy Federal Credit Union – Offer no closing costs on home equity loans and lines of credit. Rates as low as 6.99% APR.

• TD Bank – Minimal closing costs covered by lender credits. Home equity loan rates from 7.74% APR.

• Quicken Loans – Rocket Mortgage home equity loans with no closing costs. Rates starting at 7.49% APR.

• Lightstream – No closing costs or origination fees. Home equity loan rates as low as 5.99% APR.

• SoFi – No origination fee or closing costs. Rates starting at 6.74% APR.

I recommend shopping around and comparing quotes from multiple lenders. Focus on the APR rather than just the interest rate, as this accounts for fees. Apply for prequalification to see personalized rates.

Alternatives To Consider

While no closing cost home equity loans can be a great option, here are a couple alternatives to consider:

Home equity line of credit (HELOC) – With a HELOC, you only pay closing costs on the amount you initially draw. If you take small draws over time, overall closing costs are lower.

Cash-out refinance – This lets you tap equity by refinancing into a larger mortgage. You pay closing costs but can access more equity for major renovations.

Personal loan – An unsecured personal loan avoids home equity but has higher rates. Useful for smaller amounts needed more quickly.

Each option has pros and cons to weigh based on your specific needs and financial situation.

Frequently Asked Questions (FAQs)

How much can I borrow with a no closing cost home equity loan?

Most lenders will let you borrow up to 80-90% of your remaining home equity, minus what you owe on your mortgage. You can typically borrow $10,000 to $500,000 or more.

What credit score do I need?

You’ll typically need a credit score of at least 620-650 to qualify for a home equity loan. No closing cost loans have similar requirements. A higher score gets better rates.

How long does it take to get funds?

Expect around 2-6 weeks to close a home equity loan. The lender has to appraise the home and finalize paperwork. No closing costs don’t speed up the process.

Are rates higher on no closing cost loans?

Yes, lenders charge a higher rate, around 0.25 to 0.5% higher typically, to recoup their costs since you pay $0 upfront.

Can I get tax deductions on the interest paid?

If you use funds for home improvements, you may qualify for tax deductions on the interest paid each year. Talk to a tax pro to understand eligibility.

The Bottom Line

While it may sound too good to be true, no closing cost home equity loans allow you to tap equity without high upfront fees. Just be sure to compare all options and weigh the pros and cons before choosing this route. Shop around for the best rates and terms for your situation. With the right loan, you can unlock funds more affordably.