A home equity loan or home equity line of credit (HELOC) typically has much lower closing costs than what you might’ve paid when you got a mortgage to buy or refinance your home.
If you’re thinking about taking out one of these loans, you don’t need to worry about the upfront costs: They tend to be minimal, and some lenders may shoulder the costs entirely.
Do home equity loans and HELOCs have closing costs?
Any home loan has costs, including home equity loans and HELOCs. The lender, title agency, appraisal company, and closing professionals all need to be compensated 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 do pass closing costs on to borrowers, you can generally expect to pay much less than you would if you were buying or refinancing a home with a mortgage. Closing costs for a purchase or refinance loan are usually $2,000 to $5,000 per $100,000 borrowed or $8,000 to $10,000 on a $400,000 home loan.
By comparison, you might pay less than $1,000 to get a home equity loan or HELOC, in part because you’ll often be borrowing less than you would with a purchase or refinance loan. However, pricing varies by lender and by loan or line amount. You could still pay several thousand dollars upfront, especially if you’re borrowing a six-figure sum.
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 with that. It only takes a few minutes to compare personalized, prequalified rates from all our partner lenders.
HELOC and home equity loan closing costs
When you buy or refinance a home, closing costs are typically 2% to 5% of the loan amount. You’ll often read that closing costs also fall into this range for a HELOC or home equity loan, but at the time of writing, this doesn’t seem to be the case.
Few lenders disclose actual dollar amounts for closing costs on their websites, and when they do, they’re often in the fine print, and the costs range from a few hundred to a few thousand dollars. That’s because costs depend on the property’s location, how much you want to borrow, and the property type.
From the examples we found, lenders often cover 100% of home equity loans and HELOC closing costs. When borrowers do have to pay these expenses, they’re often just 1% of the loan amount or less. You might pay up to 5% of the loan amount if you want a lower interest rate or you’re borrowing a relatively small sum (say, $50,000).
Here’s what these fees entail:
- Credit report fee: Reimburses the lender for ordering your credit report from a scoring bureau. Your credit report shows your history of repaying debts on time.
- Flood determination fee: Pays someone to research whether your home is in a high-risk flood zone. If it is, your lender will require you to carry flood insurance.
- Government fees and recording charges: Pays a local government official to record the home equity lender’s lien against your home.
- Appraisal or automated valuation: Pays a professional home appraiser or valuation service to provide a reasonable assessment of your home’s fair market value. Your lender uses this information to decide how much you can borrow.
- Title search: Pays for a title company to research who else might have a claim against your home.
- Loan origination fee: Compensates the lender for underwriting and funding your loan.
- Notary fee: Compensates a professional for verifying your identity and witnessing your signature on loan documents.
- Attorney fees: In some states, you need a real estate attorney to close on your home. The attorney may charge you a flat fee or an hourly rate.
Other HELOC expenses
HELOCs may have these additional costs that home equity loans do not:
- Minimum draw: Also called an initial advance, some lenders require you to borrow at least a certain amount of money when your loan closes.
- Annual fee: 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 take a draw that year. And some lenders don’t charge an annual fee at all.
- Early closure fee: Some lenders charge an early closure fee if you close your HELOC within 36 months of opening it. Often, these are the same lenders that don’t charge any closing costs when you take out your HELOC, and the fee will be a prorated amount of the closing costs you didn’t pay upfront. A common reason for closing a HELOC early is selling your house.
- Fixed-rate conversion fee: Some lenders allow you to lock in a fixed rate on a portion of your HELOC and may charge a fee for the privilege.
See: 6 Ways to Negotiate Home Closing Costs
How to reduce home equity loan or HELOC closing costs
You can reduce your home equity loan or HELOC closing costs with these strategies:
- Shop around. It’s easier than ever to get loan estimates from multiple lenders, and shopping around won’t hurt your credit if you limit your applications to a 45-day window.
- Negotiate. With loan estimates from multiple lenders, you may be able to get lenders to bid each other’s costs down.
- Choose a lender who will pay your closing costs. Find out if you’ll pay a higher interest rate in exchange for no closing costs. It may not be worth it if you’ll be repaying a large loan over many years.
