August 11, 2022
  • August 11, 2022

HELOC and home equity loan closing costs

By on June 16, 2022 0

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A home equity loan or home equity line of credit (HELOC) usually has much lower closing costs than what you might have paid when you got a mortgage to buy or refinance your home.

If you’re considering taking out one of these loans, you don’t need to worry about upfront costs: they tend to be minimal, and some lenders can cover the costs entirely.

Here’s what you need to know about home equity loan closing costs:

Do home equity loans and HELOCs have closing costs?

Every home loan has costs, including home equity loans and HELOCs. The lender, title agency, appraisal company and closing professionals should all be paid for their services.

However, some home equity lenders will cover 100% of the loan closing costs. Others will let you roll the costs into your home equity loan or HELOC.

Even when home equity lenders pass closing costs on to borrowers, you can usually expect to pay significantly less than if you bought or refinanced a home with a mortgage. Closing costs for a purchase or loan refinance are typically $2,000 to $5,000 per $100,000 borrowed, or $8,000 to $10,000 on a $400,000 home loan.

By comparison, you could pay less than $1,000 for a home equity or HELOC loan, in part because you’ll often be borrowing less than you would with a purchase or refinance loan. However, prices vary depending on the lender and the amount of the loan or line. You could always pay several thousand dollars up front, especially if you’re borrowing a six-figure amount.

You won’t find home equity loans or HELOCs at Credible, but if you’re looking for a great rate on a cash-out refinance, we can help. It only takes a few minutes to compare personalized and pre-qualified rates from all our partner lenders.

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HELOC and home equity loan closing costs

When you buy or refinance a home, closing costs are typically 2-5% of the loan amount. You will often read that closing costs also fall within this range for a HELOC or home equity loan, but at the time of writing this does not appear to be the case.

Few lenders disclose actual closing cost amounts on their websites, and when they do, they are often in the fine print, and the cost ranges from a few hundred to a few thousand dollars. Indeed, the costs depend on the location of the property, the amount you want to borrow and the type of property.

From the examples we found, lenders often cover 100% of home equity loan and HELOC closing fees. When borrowers have to pay these expenses, they are often only 1% of the loan amount or less. You could pay up to 5% of the loan amount if you want a lower interest rate or if you are borrowing a relatively small amount (eg $50,000).

Closing costs Average cost
Credit application fees $30
Flood Determination Fee $15
Government fees and registration fees $100
Home evaluation $350
Title search $100
Loan origination fees Varies by lender
Notary fees $100

Here’s what those fees entail:

  • Credit application fees: Reimburses the lender for ordering your credit report from a credit bureau. Your credit report shows your history of paying off debts on time.
  • Flood Determination Fee: Pay someone to search if your home is in a high-risk flood zone. If so, your lender will require you to purchase flood insurance.
  • Government fees and registration fees: Pays a local government official to register the home equity lender’s lien against your home.
  • Expertise or automated valuation: Pay a professional appraiser or appraisal service to provide a reasonable estimate of the fair market value of your home. Your lender uses this information to decide how much you can borrow.
  • Title search: Pay a title company to research who else may have a claim against your home.
  • Loan origination fees: Compensates the lender for underwriting and funding your loan.
  • Notary fees : Pay a professional to verify your identity and witness your signature on loan documents.
  • Lawyer’s fees: In some states, you need a real estate attorney to close on your home. The lawyer may charge you a block fee or an hourly rate.

Other HELOC expenses

HELOCs can have these additional costs that home equity loans do not:

  • Min draw: Also called an initial advance, some lenders require you to borrow at least a certain amount of money when you close your loan.
  • Annual subscription : Some lenders charge an annual fee of $100 or less whether you withdraw funds from the HELOC that year or not. Others only charge an annual fee if you don’t draw that year. And some lenders don’t charge an annual fee at all.
  • Early Closing Fee: Some lenders charge an early closing fee if you close your HELOC within 36 months of opening it. Often, these are the same lenders that charge no closing costs when you take out your HELOC, and the fees will be a pro-rated amount of the closing costs you didn’t prepay. A common reason for closing a HELOC early is to sell your home.
  • Flat conversion fee: Some lenders allow you to lock in a fixed rate on part of your HELOC and may charge a fee for this privilege.

See: 6 Ways to Negotiate Home Closing Costs

How to Lower Home Equity Loan or HELOC Closing Fees

You can lower your home equity loan or HELOC closing costs with these strategies:

  • Compare the prices. It’s easier than ever to get loan quotes from multiple lenders, and shopping around won’t hurt your credit if you limit your inquiries to a 45-day window.
  • To negotiate. With loan estimates from multiple lenders, you may be able to get lenders to cut costs from others.
  • Choose a lender who will pay your closing costs. Find out if you will pay a higher interest rate in exchange for no closing costs. It may not be worth it if you are paying off a large loan over several years.

Need help finding a good mortgage rate? Credible can help. Easily compare all of our partner lenders and view personalized purchase and refinance rates in just three minutes. Checking rates is free and will not affect your credit.

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About the Author

Amy Fontinelle

Amy Fontinelle is an authority on mortgages and credit cards and contributes to Credible. His work has been published in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, etc.

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