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Leveraging your home equity through a home equity loan or home equity line of credit (HELOC) can help you fund large projects or expenses. If you have a major home renovation or planned expense and don’t have cash on hand, borrowing from your home equity might be an appealing option.

Before moving forward with this financing approach, remember that home equity loans and lines of credit come with fees you’ll need to factor into the loan’s total cost. While the average closing costs for a home equity loan or line of credit are often lower than the closing costs of a standard mortgage, they can range between 2 percent to 5 percent of the total loan amount. Learn more about home equity loan closing costs and how to reduce them.

What are home equity loan and HELOC closing costs and fees?

Home equity loans and HELOCs have some features in common, including many of the fees you might see at closing. While some lenders offer no-closing-cost HELOCs, you may be required to pay a fee or reimburse your financial institution for those costs if you pay off and close your HELOC within a certain time frame.

  • Origination fee: Some lenders charge an origination fee up front. Amounts vary by lender but may be either a flat fee or a percentage of the amount you borrow.
  • Appraisal fee: Lenders may require that a home appraiser determine the value of your property. Generally, this costs between $300 to $450.
  • Credit report fee: As a part of any credit-based lending process, lenders check your credit score and report. This typically incurs a fee between $10 and $100 per credit report.
  • Document and filing fees: Document preparation incurs fees, and professionals such as attorneys and notaries must review the paperwork. For example, a county recording fee might be up to $50.
  • Title fees: Since the home is used as collateral for a home equity loan or HELOC, lenders will arrange a title search to see if there are any liens or claims to the property from another entity. This fee is typically about $100 to $450, depending on your area.
  • Points: Some lenders let you pay upfront fees known as “points” to lower your interest rate. Each point is 1 percent of your borrowing amount. Keep in mind: Most HELOCs don’t have points.

Other HELOC expenses

There are other possible HELOC-specific expenses to consider that aren’t part of closing costs. These fees can vary depending on the lender, and some may not charge them at all:

  • Annual fees: This is a recurring fee for each year of an open account. The fee is charged regardless of whether you draw from the line of credit during the year.
  • Transaction fee: Not all lenders charge this fee, but if yours does, you’ll pay a fee every time you draw from the HELOC.
  • Inactivity fee: HELOCs that have no transactions for a certain period of time might incur an inactivity fee.
  • Early termination fee: If you pay your HELOC off and close the account before the term in your agreement, the lender may charge an early cancellation or prepayment fee.

Read your loan documents and ask your lender about other HELOC costs that could potentially affect how much you end up paying.

How to reduce your home equity loan closing costs

Closing costs can be expensive, but there are steps you can take to reduce these costs on your home equity loan:

  1. Reduce your debt-to-income (DTI) ratio. By paying off other debt, such as unsecured credit cards, you’ll be in a stronger position to receive more favorable closing cost options. For example, if you have less debt and a higher credit score, a lender might offer to add your closing costs to the loan principal so you have no immediate out-of-pocket costs.
  2. Shop around with multiple lenders. Comparing closing costs among lenders can help you find the most affordable home equity loan option for you.
  3. Negotiate with lenders. Don’t be timid about negotiating on home equity loan costs and fees. These added charges are often more flexible than the lender might let on. If a lender is unwilling to budge on its closing fees, consider working with a different lender.

No-closing-cost-HELOCs

Some lenders might advertise no-closing-cost HELOCs in addition to traditional HELOCs that come with closing costs. There are also some home equity loans with no closing costs. Typically, the lender compensates for the lack of closing costs by charging a slightly higher interest rate.

It’s important to shop around and compare rates and closing costs to make sure you get a good deal. Each lender will have different rates and options and you may find a lender that offers a reasonable rate with no closing costs, saving you the upfront cost. You may also find a lender with expected closing costs but an incredibly low rate.

Bottom line

To explore whether borrowing against your home’s equity is right for you, see how much you might be able to borrow with a home equity calculator. If and when you’re ready to move forward with a lender, be sure you understand all closing costs, even for loans or lines of credit with “no closing costs.”