A guide to home equity loan closing costs

Need to pay for a major kitchen remodel? Want to add a primary bedroom suite? A home equity loan or a home equity line of credit (HELOC) can be a savvy way to pay for these and other home improvements.

A home equity loan is a second mortgage that allows you to borrow your equity. The proceeds are paid to you in a lump sum, and you don't have to refinance and change your existing primary mortgage rate.¹ While Rocket Mortgage^® doesn’t offer HELOCs, we do offer Home Equity Loans.²

Just like your primary mortgage, home equity loans have closing costs. We’ll go over home equity loan closing costs to help you decide if this is the right option for you.

Do home equity loans have closing costs?

Yes, home equity loans have closing costs. You can expect to pay 3% – 6% of your total loan amount in closing costs for a home equity loan.

For example, if you take out a $100,000 home equity loan, you can expect to pay $3,000 – $6,000 in closing costs.

Quick guide to home equity loan closing costs

Deep dive into home equity loan closing costs

You have an idea of the overall closing costs for home equity loans, but what are you paying for? While these fees are often going to vary by lender, property type, and the loan you’re getting, here’s what you can expect.

1. Appraisal fees

A home appraisal is a key step in your application for a home equity loan. Before approving the loan, your lender must determine the value of your property. To do this, your lender will order a home appraisal. A state-licensed third-party appraiser will visit your home and compare it to similar properties in the area that have recently sold. This also includes a standard health and safety assessment.

The appraiser will then determine the market value of your property, a figure your lender will need to calculate how much equity you’ve built. The appraisal fee will vary, but you can generally expect to pay between $400 and $1,000. You may pay more if the home is unique or remote.

2. Credit report fees

Before approving the home equity loan, your lender will pull your credit report and check your credit score. Credit service fees vary, but most will cost anywhere from $30 – $120, depending on the type of credit report used.

If you’re applying for a home equity loan with someone else, such as a spouse or partner, lenders will check the credit of everyone listed on the mortgage and charge for every credit report they pull.

3. Origination fees

Your lender will charge a mortgage origination fee to cover the costs of processing and underwriting your loan. Underwriters verify your income and confirm that you can afford your new monthly mortgage payment.

You may also see the origination fee broken out into a document processing fee and an underwriting fee. Regardless of the breakdown, you can expect to pay 0.5% – 1% of your loan amount.

4. Notary fees

In most states, a real estate notary must be present to conduct a closing. Notary fees vary, but you can expect to pay up to $150.

5. Attorney or document preparation fees

Some states require an attorney to conduct the closing. Those fees can vary quite a bit. Your settlement provider will handle these arrangements. There also may be special document preparation required, depending on your situation. The fees can be $200 – $500.

6. Title search fees

Your lender will order a title search before approving you for a home equity loan. It’s a search of public records for liens or ownership claims held by other entities – including government bodies or individuals – against your home.

For example, if you're behind on your property taxes, your county may have a lien against your home, which would show up in a title search.

The title search fee often depends on a property’s location and typically costs $100 – $300.

7. Title insurance costs

Your lender might require a lender’s title insurance policy when you take out a home equity loan. The insurance protects your lender if a previously unknown ownership claim is made against your home. You can expect to pay 0.1% – 1% of the loan amount for a lender’s title policy.

In some cases, for home equity loans, title providers, including Rocket Close℠, offer an insurance wrapper that’s not a full policy when there’s already an existing primary mortgage on the home because there’s an existing lender’s title policy already in place. An extensive title search is conducted for extra assurance.

You probably don’t need to buy an owner’s title insurance policy – which also protects a homeowner against unexpected ownership claims – when taking out a home equity loan if you already purchased one when you purchased the home.

8. Closing or settlement fee

A fee is charged to facilitate your settlement. This is often $200 – $1,000. Some of the variability in this price may come from whether the notary fees are included. Sometimes they are. Other times it’s a separate line item.

What are the closing costs and fees for a HELOC?

We’ve spoken primarily about home equity loans here, but it’s worth discussing HELOCs for a moment. Although Rocket Mortgage doesn’t offer these, you should be aware of all your options.

Unlike a home equity loan, a HELOC functions like a credit card with a limit based on your home equity. During the initial period, you’re only required to pay interest on the amount you borrow. You can pay money back into the HELOC and draw it out again. After a specified number of years, the balance freezes, and you continue making payments until the total amount is repaid in full, with interest.

HELOC closing costs are like home equity loan closing costs, but there are ongoing fees that may be more commonly associated with credit cards:. While not every lender charges every fee, here are some of the common ones:

• Annual fees. There may be a yearly fee associated with maintaining the account.
• Termination fees. This could be charged when you close the account early. For example, these are often expressed as a percentage of the loan amount, up to a maximum.
• Transaction fees. You could pay a small fee each time you withdraw money from the HELOC.
• Inactivity fee. There may be fees if you don’t use the account at least to the minimum set by your lender.

How can you lower your home equity loan costs?

If you’re looking for ways to lower the costs associated with your home equity loan, there are several ways to do that. We’ll cover reducing closing costs and also touch on reducing ongoing payments related to the loan.

1. Find lenders with no-closing-cost home equity loans

Some lenders offer home equity loans with no closing costs. In exchange for not paying closing costs, you’ll typically pay a higher interest rate, which may cost you more overall.

2. Improve your credit score

Borrowers who improve their credit scores also may qualify for lower interest rates on home equity loans. You can improve your credit score by paying your bills on time and paying off as much outstanding debt as you can before applying for a home equity loan.

3. Shop around and compare lenders

Closing costs for home equity loans vary depending on which mortgage lender you choose. Low fees can help you save money up front, but you should also prioritize lower interest rates. The lower your interest rate, the lower your monthly payment. Landing a lower interest rate may outweigh the price of slightly higher closing costs.

4. Negotiate your closing costs

Negotiating closing costs with lenders is another way you can lower the cost of your home equity loan. Lenders may waive specific fees if you ask. If they aren’t waived, you may be able to receive a credit toward them.

5. Reduce your debt

You can boost your odds of enjoying a lower interest rate on your loan by reducing your monthly debt before applying. Lenders look at your debt-to-income ratio (DTI) to help determine what interest rate you qualify for.

The ratio measures how much of your gross monthly income goes toward your monthly debts and your estimated new loan payment. You can lower your DTI ratio by paying off as much debt as possible.

The bottom line: Home equity closing fees may be negotiable

Home equity loans and HELOCs have closing costs for everything from appraisals and title searches to notary services. You can generally keep your costs down by improving your credit score and DTI to secure a better interest rate. You can look at no-closing-cost options in exchange for a higher rate, or negotiate the cost that does exist.

If you’re ready to get started or look at other options, you can apply online.

¹ Refinancing may increase finance charges over the life of the loan.