A home equity loan (HELOC) or home equity credit (HELOC), can provide homeowners with a cash injection that can be used to remodel their homes, consolidate debts, or finance their businesses.
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However, there will be some initial costs.
Home equity products have closing costs just like a mortgage. These fees should be considered before you take out a HELOC or home equity loan.
Khari Washington, a broker who owns 1st United Realty & Mortgage, says that HELOCs and home equity loans can also be considered mortgages. “Many of these fees are the same as primary mortgages.”
Closing costs and fees for a home equity loan
Be prepared to pay closing costs if you borrow against equity in your home. The closing costs for home equity loans can range from 2% to 5% of the total loan amount.
Fees can vary between lenders, so compare closing costs to find the best deal. Ask for a complete list of fees. These are the fees that you should expect when closing a home equity loan.
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Application fee — This is the fee for standard applications.
Appraisal fee — This will allow the lender to determine the equity in your home. A home equity loan allows you to borrow up to 85% from your equity.
Credit report fee — Many lenders charge a fee to run your credit score in order to assess your creditworthiness. To get the best loan rate, make sure your credit score is in good standing.
Title search fee — This is a part of the home equity loan process that proves to the lender you are the owner of the property and any liens against it.
Attorney and notary fees — Additional fees may be charged if a lawyer is involved in the preparation of the paperwork or the notary.
Cornerstone Financial Services managing partner Daniel Milan says that fees are partly determined by the size of the loan. Some lenders will combine all fees into one flat fee.
HELOC Closing Fees and Costs
A HELOC and a home equity loan are different in that funds can be pulled from the loan at any time during the draw period. It acts much like a credit card. You must start repaying the loan once the draw period has ended.
HELOC closing costs can vary depending on which lender you choose, so make sure to shop around for the best rates.
A HELOC will require you to pay origination fees and underwriting fees as well as loan recording fees.
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These are other closing costs you should be aware of:
- Notary fees
- Search for titles
- Appraisal fee
- Credit Report Fee
- Attorney fees
- Recording fees
HELOCs have additional fees that are exclusive to HELOCs. These fees are ongoing and must be known if you want to keep your HELOC open.
Annual fees and maintenance fees — These are fees for managing and maintaining an account.
Minimum withdrawal — You might need to withdraw a certain amount in order to tap into your equity slowly. This is usually stated in your agreement.
Cancellation Fee — You might be charged if you cancel your HELOC after a specific time.
Inactivity fee — Your lender may require you to use your HELOC continuously. You must be active. You could be liable if you don’t.
How to Lower Your Home Equity Loan Closing Fees
You can compare rates with various lenders to get the best rate on a HELOC or home equity loan.
Washington states that some lenders will cover the majority, if not all, of costs at certain rates. You can also include leftover fees in your loan. The rate will usually drop if a homeowner agrees to a slightly higher interest rate and a prepayment penalty. The fees for origination, underwriting and processing are not set in stone. Some lenders can negotiate these fees.
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Keep a high credit score. When lenders decide whether to approve you for a loan, this will make you appear professional. Jason Gelios, a Michigan real estate agent and author of Think Like a REALTOR, says that lowering your debt-to income ratio (the percentage lenders use to determine how much they will lend an applicant) can help you save.
