Home Equity Loan Closing Costs & Fees

Home equity loans and home equity lines of credit (HELOCs) let you turn your home equity into cash. A home equity loan gives you a lump sum at closing, while a HELOC gives you access to credit to use at your discretion.

And while sometimes, these loans can be smart ways to fund home renovations, cover bills, or even pay off debts, they don’t come without cost. HELOCs and home equity loans come with several fees, and you’ll want to consider these before applying for either product.

Are you thinking about taking out a home equity loan or HELOC? Here are the costs you’ll want to consider.

In this guide:

• What are home equity loan fees and closing costs?
• What are HELOC fees and closing costs?
• Consider the cost of borrowing on a home equity loan or line of credit
• How to reduce or avoid home equity loan fees
• How to reduce or avoid home equity loan closing costs
• Be sure to shop around

What are home equity loan fees and closing costs?

The types of home equity loan fees may vary by lender. Here are fees you can typically expect:

• Origination fee: This is the fee charged for issuing your loan. Some lenders may call this an application fee.
• Appraisal fee: Lenders typically require appraisals to determine the market value of your property and, subsequently, how much you can borrow.
• Credit check: When you apply for a loan or line of credit, the lender will pull your credit report to review your payment history and credit score. 
• Title search: Lenders will conduct a title search, which confirms you legally own your property. 
• Document preparation and notarization: Some lenders charge fees for preparing your loan documents and having them legally reviewed. You may also have to pay to have the documents notarized.
• Loan recording: Your new loan will need to be recorded with the county, which usually comes with a small fee. 
• Points: Purchasing mortgage points can reduce your interest rate. This is often called “buying down your rate.”

There may also be prepayment penalties if you pay off the loan too quickly after taking it out. 

Here’s a look at the average costs you can typically expect for home equity loans:

You can usually expect your closing costs to equal between 2% and 5% of the total loan amount.

What are HELOC fees and closing costs?

HELOC closing costs are typically comparable to those of home equity loans. 

When taking out a HELOC, you can typically expect to pay:

• Origination fee: This is the cost of issuing your line of credit. It might be a flat fee or a percentage of your total credit line.
• Appraisal fee: Your lender will need to appraise your home to determine its market value. The appraisal is used when calculating your loan-to-value ratio and how much you can borrow with your HELOC.
• Credit check: You will typically pay a small fee for your lender to pull your credit report and review your credit history.
• Title search: Your lender will confirm you legally have the title to your property before they issue a HELOC attached to it.
• Document preparation and notarization: These fees cover preparing and notarizing your final documents before closing.
• Loan recording: This is the cost of recording your loan documents with the county.
• Prepayment penalty: You might pay an extra fee if you close your credit line before a certain point. 

HELOCs come with fees after your closing date, too. These include things like:

• Annual maintenance fees: This is the cost of managing and maintaining your credit line on an ongoing basis.
• Inactivity charges: You may be charged these if you fail to use your credit line within a specified timeframe.
• Early termination fees: If you close your account earlier than agreed upon with your lender, you might be charged an extra fee.
• Minimum withdrawals: Some HELOCs require you to withdraw a minimum amount from your home equity. This can increase your long-term interest costs.
• Rate conversion fees: If you want to switch from a variable rate to a fixed one, you may be charged a fee.

Here’s a look at how much some of these HELOC fees might cost:

Consider the cost of borrowing on a home equity loan or line of credit

Keep the total cost of borrowing in mind when comparing your loan options. You might find that one with a higher upfront cost will save you in the long run, so be sure to do the math.

Here’s an example:

In the above scenario, the second loan offer might look more expensive upfront, charging $300 more in closing costs, but in the long run, it actually saves you cash. To ensure you’re getting the best deal, always compare the full range of fees—both upfront and over the loan term.

How to reduce or avoid home equity loan fees

Fees can add up, and they can quickly eat into how much value a home equity loan or HELOC can offer you.

Fortunately, there are a few ways you can reduce or avoid fees on your home equity loan or HELOC. For one, you can compare options from several lenders. Every company charges different fees, so comparing a few can ensure you get the best deal. Lenders may waive fees to get your business.

You should only borrow what you need, as this reduces your interest and the cost of any percentage-based fees your lender may charge.

How to reduce or avoid home equity loan closing costs

HELOC and home equity closing costs can add up to 5% more in charges, so taking steps to avoid or reduce these is critical. 

Some lenders charge no closing costs at all. Just be sure to read the fine print. They might roll the costs into your loan rather than charge you at closing—meaning more long-term interest charges. Or, lenders might charge costly prepayment penalties. 

You can also work on improving your application. Improving your credit score, reducing your debt-to-income ratio, and paying your bills on time can make you a lower-risk borrower and potentially lead to better loan offers.

Finally, only borrow what you need. Taking out more money than you’ll use will result in higher closing costs and more long-term interest charges.

Be sure to shop around 

Fees, penalties, and interest rates can vary based on your credit score and the lender, so it pays to do research and compare several options. 

Some fees may be negotiable, so ask your lender before signing on the dotted line. Your loan agreement is a contract, and you don’t have to agree to every term that is presented to you. Use quotes from other lenders as a negotiating tool. In some cases, one company may match or beat the quote of another.