How much does it cost to close a home equity loan?
A home equity loan, or home equity line credit (HELOC), can be used to leverage your home equity and help you finance large projects or other expenses. Competitive rates may make borrowing from your home equity attractive if you have a large home renovation or expense in mind and don’t have any cash.
Remember that home equity loans or lines of credit can have expensive fees, so you need to consider these charges before proceeding with this financing method. Although closing costs for home equity loans or lines of credit are typically lower than those of standard mortgages, they can still be as high as 5% to 5% of the total loan amount.
What are closing costs for HELOC and home equity loans?
Some features of HELOCs are similar to home equity loans. This includes many fees that may be charged at closing. Although some lenders offer HELOCs without closing fees, others may charge fees or reimburse your financial institution if you don’t pay your HELOC in a given time.
- Origination fee: Occasionally, lenders will charge an origination fee upfront. The amount charged by lenders varies, but can be either flat fees or percentages of the amount borrowed.
- Appraisal fee Some lenders may require that an appraiser assess your property to determine its value. This usually costs $300-$450.
- Credit Report Fee: In order to lend credit-based credit, lenders will review your credit report and credit score. This fee typically ranges between $10 to $100 per credit report.
- Insurance Costs: If you don’t have sufficient flood insurance, this may include flood insurance.
- Document and filing fee:Document preparation costs money. Notaries and attorneys must review your paperwork. One example is the $50 county recording fee.
- Title Fees: As the home is used to secure a home equity loan, or HELOC (home equity loan), lenders will conduct a title search to check if there are any claims or liens to the property. This fee ranges from $100 to $450, depending upon where you live.
- Taxes It is possible that you will have to pay taxes depending on the laws in your area or the lender’s requirements. Prices vary. Some areas may require taxes equal to 1% or 3% of the loan amount.
- Points: You may be able to pay an upfront fee known as “points” from some lenders in order to lower your interest rates. Each point is 1% of the total amount borrowed. HELOCs almost always have no points.
Other HELOC costs
HELOC-specific fees are an additional expense that is not part of closing costs. These fees will vary depending upon the lender . Some may charge them all,.
- Annual fees These are recurring fees for every year an open account is in existence. No matter how many times you draw from your line of credit in a year, the fee will be charged.
- Transaction fee Some lenders don’t charge this fee but you’ll have to pay it every time you draw on the HELOC.
- Inactivity fee HELOCs who have not made any transactions in the past 30 days might be charged an inactivity fee.
- Early termination fees: Lenders may charge an early cancellation fee if you pay off your HELOC and close your account before the end of your agreement.
You should carefully read your loan documents, and speak to your lender about any HELOC fees that may impact the final amount.
How to lower the closing costs of your home equity loan
Closing costs are often high . However, there are steps you could take to lower your closing costs for your home equity loan.
- You can reduce your debt to income ratio by paying off other consumer debts, such as unsecured cards. This will allow you to be eligible for more closing cost options. If you have lower credit scores and less debt, a lender may allow you to add your closing costs onto the loan principal to avoid any out-of-pocket expenses.
- Get multiple quotes from lenders. This will help you to choose the best home equity loan for you.
- Get in touch with lenders. Be open to negotiating home equity loan fees and costs. These additional fees can often be more flexible than the lender might admit. You might consider switching lenders if the lender is not willing to compromise on its closing costs.
- Lenders may offer low closing costs. It’s important that you compare rates and closing costs when looking for lenders. You could save money by planning ahead and taking more time.
The bottom line
Use a home equity calculator and find out how much you could borrow to see if borrowing against the equity in your home is right for YOU. This will help you to understand the impact of fees on your borrowing costs.
Request a list of closing expenses if you’re willing to discuss your loan with a lender. Make sure that your loan agreement includes verbal agreements concerning closing costs. You can bring up any missing items with your lender prior to signing the paperwork.