How Much Are Closing Costs on a Home Equity Loan?

Home equity loans and home equity lines of credit (HELOCs) allow homeowners to access the value built up in their property. These financial products can be used for home improvements, debt consolidation, or other significant expenses. Obtaining a home equity loan or HELOC involves specific costs beyond the principal, known as closing costs.

Understanding Home Equity Loan Closing Costs

Closing costs for a home equity loan are fees paid to third parties involved in the transaction. These expenses cover services necessary to process and finalize the loan, ensuring all legal and administrative requirements are met.

Home equity loan closing costs typically range from 2% to 6% of the total loan amount. For example, a $100,000 loan could incur costs between $2,000 and $6,000. While home equity loans and HELOCs share many similar closing costs, HELOCs may have fewer upfront costs but can include ongoing fees like annual maintenance or inactivity charges.

Typical Closing Cost Components

Several distinct fees contribute to the overall closing costs when obtaining a home equity loan.

An appraisal fee determines the current market value of the property serving as collateral. Lenders require an independent appraisal to assess the home’s worth, which directly influences the amount of equity available for borrowing. These fees generally range from $300 to $2,000, though some lenders may use automated valuation models (AVMs) to reduce or eliminate this cost.

Lenders also charge credit report fees to assess the borrower’s creditworthiness. This involves pulling credit reports to review credit history and scores, which helps determine eligibility and interest rates. Credit report fees typically fall between $10 and $100.

Origination fees cover the lender’s administrative costs for processing and underwriting the loan application. This fee compensates for setting up the loan, verifying financial information, and ensuring the borrower can afford payments. Origination fees are often calculated as a percentage of the loan amount, typically ranging from 0.5% to 1%.

Document preparation and attorney fees cover the creation of legal documents required for the loan and, in some cases, their review by an attorney to ensure compliance. These fees can range from $100 to $400 or be a percentage of the loan amount, often between 0.5% and 1%.

Title search fees examine public records for any existing liens or ownership claims against the property. This search ensures a clear title, protecting the lender’s interest in the collateral. Title search fees typically cost between $75 and $450.

Lender’s title insurance is often required to protect the lender against undiscovered ownership claims or liens. This insurance safeguards the lender’s investment should any title issues arise. The cost for lender’s title insurance typically ranges from 0.1% to 2% of the loan amount.

Recording fees are charged by local government authorities to officially register the home equity loan as a lien against the property. This public record ensures the loan’s legal standing and priority. These fees are usually smaller, often ranging from $15 to $50.

Factors Affecting Your Closing Costs

Several factors can significantly influence the total closing costs for a home equity loan.

The specific lender chosen plays a considerable role. Different financial institutions may have varying fee structures, some offering lower rates or waiving certain fees. Comparing offers from multiple lenders can help reduce overall costs.

The type of home equity product selected, whether a closed-end home equity loan or a HELOC, impacts associated costs. While both involve fees, HELOCs may have lower upfront closing costs but might include ongoing charges like annual fees or inactivity fees.

The loan amount itself directly influences many percentage-based fees, such as origination fees or title insurance. A larger loan amount generally results in higher dollar amounts for these costs. Borrowing only the necessary amount can help manage total expenses.

A borrower’s creditworthiness can also affect closing costs. A strong credit score can lead to more favorable loan terms, potentially including lower interest rates or the ability to negotiate certain fees. Lenders may offer concessions to borrowers with excellent credit histories.

Property location is another important factor, as state and local regulations can dictate certain fees or require specific services, such as attorney involvement in the closing process. These regional differences can lead to variations in recording fees, transfer taxes, or legal expenses.

Reviewing and Paying Your Closing Costs

Reviewing and paying home equity loan closing costs involves specific documents and procedures designed for transparency.

Upon applying for a closed-end home equity loan, lenders provide a Loan Estimate within three business days. This document details estimated closing costs, interest rate, and other loan terms. Borrowers should carefully review this estimate, comparing it across different lenders to identify potential savings.

Prior to closing, typically at least three business days before the scheduled signing, borrowers receive a Closing Disclosure. This document provides the final, exact costs of the loan and a detailed breakdown of all charges. It is important to compare the Closing Disclosure with the initial Loan Estimate to ensure accuracy and identify any significant changes.

Payment for closing costs is typically due at the time of closing. These funds are commonly paid via a wire transfer or certified check. In some cases, lenders may offer to roll certain closing costs into the loan amount, but this can result in paying interest on those fees over the life of the loan.