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.

Home equity loans and HELOCs are beneficial, especially when you understand the costs behind them. Let’s explore some closing costs you can expect to pay when closing on a home equity loan or HELOC. Rocket Mortgage^® doesn’t offer HELOCs at this time, but we do offer a Home Equity Loan.¹

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 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.

But what fees and services contribute to your closing costs?

What Are The Different Kinds Of Home Equity Loan Closing Costs?

A home equity loan allows you to borrow against the equity you’ve built in your home— a figure that rises as you pay down your mortgage loan and/or the value of your home increases. Home equity loan closing costs include various fees.

Quick Guide To Home Equity Loan Closing Costs:

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 how much your property is worth. 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 by location, but you can generally expect to pay in the range of $600 – $2,000.

2. Credit Report Fees

Before approving the home equity loan, your lender will pull your credit report and check your three-digit credit score. Credit service fees vary, but most will cost anywhere from $20 – $50.

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. Attorney Fee Or Document Preparation Fees

Your lender will prepare numerous documents you must review and sign for a home equity loan. In some states,’ attorney review of these documents is required to ensure they accurately reflect your closing costs.

The fees will vary, but you can expect to pay 0.5% – 1% of your loan amount on document preparation or attorney fees.

4. Origination Fees

Your lender will charge a mortgage origination fee to cover the costs of processing your loan, such as collecting your financial information and underwriting your loan. Underwriters are responsible for verifying your income and confirming that you can afford your new monthly mortgage payment.

This fee will also vary, but you can expect to pay 0.5% – 1% of your loan amount.

5. Notary Fees

You must hire a real estate notary if you have paperwork you need notarized during closing. Notary fees will vary, but you can expect to pay about $20 for notary services.

6. Title Search Fees

Your lender will order a title search before approving you for a home equity loan. It’s a search of the public record for liens or ownership claims other entities – including government bodies or individuals – have 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 during a title search.

The title search fee often depends on a property’s location and generally costs $75 – $200.

7. Title Insurance Costs

Your lender will probably require a lender’s title insurance policy when you take out a home equity loan. The insurance protects your lender if an individual, government body, or other entity makes an undiscovered ownership claim against your home that didn’t come up during the title search. You can expect to pay 0.1% – 2% of the loan amount for a lender’s title policy.

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.

A home equity loan is one way to borrow against your home’s equity and meet your financial needs, and a home equity line of credit is another.

What Are The Closing Costs And Fees For A HELOC?

With a HELOC, closing costs and fees typically range from 2% – 5% of its credit limit combined. However, closing costs alone are typically minimal in comparison to a home equity loan.

While HELOCs share some fees with home equity loans, they have additional fees you wouldn’t pay with a home equity loan.

Like a home equity loan, how much you can borrow with a HELOC is based on the equity you’ve built in your home. However, HELOCs act more like credit cards, and a HELOC’s credit limit is based on the equity in your home.

Let’s explore the unique closing costs and fees associated with a HELOC.

HELOC Annual Fees

Your lender may charge an annual fee to keep your HELOC open. Think of the annual fee, which can vary, as a membership fee. Some lenders charge $5 a year, and others charge up to $250.

HELOC Termination Fees

A termination fee is a type of prepayment fee. You’ll pay it if you close your HELOC before a specific date. You may pay a termination fee equal to 5% of your line of credit if you close your HELOC before 3 years or 3% if you close it before 5 years. These fees can vary, so shop around for lenders who don’t charge the fee or charge a low termination fee.

HELOC Inactivity Fees

Your lender may charge a small fee if you don’t borrow against your HELOC enough. Shopping around for a lender that doesn’t charge this fee can save you money.

HELOC Transaction Fees

Some lenders charge a small fee each time you borrow against your HELOC. Consider shopping around for a lender who doesn’t charge transaction fees.

How Can You Lower Your Home Equity Loan Costs?

There are ways to lower what you pay to close on a home equity loan. You can build a strong credit score, reduce your monthly debt and shop for lenders that offer low or no closing costs.

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 can add up to a higher monthly payment. The choice is whether skipping the upfront closing costs is worth the ongoing increased cost.

2. Improve Your Credit Score

Borrowers who improve their credit scores may also 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

Lender closing costs for home equity loans will vary when choosing a mortgage lender. 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 payments. 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 to potentially lower the cost of your home equity loan. Lenders that charge certain fees – such as the credit pull fee – may waive them 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 gross monthly income will go 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 On Home Equity Loan Closing Costs

Home equity loans and HELOCs are an affordable way to fund major home improvements or pay off big-ticket items. With the right help, you can make sure the loan product you pick matches your financial needs and goals.

Ready to tap into your home’s equity? Apply to get a home equity loan.

¹ Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 2/5/2024 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00. Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Schwab products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher priced loans are not allowed on properties located in New York. Additional restrictions apply. This is not a commitment to lend.