How much does a home equity loan cost?
Home equity loan closing costs are typically between 2% and 5% of the amount you’re borrowing. So, with a $100,000 loan, those costs could be between $2,000 and $5,000.
Some lenders do offer no-closing-cost home equity loans. But these usually charge a higher interest rate, which could cost you more in the long run.
The amount you’ll pay in home equity loan fees can vary a lot from one lender to the next. So the best way to save money is by comparing offers from a few different lenders to find the cheapest one.
In this article (Skip to...)
- Closing costs
- How fees are set
- Lowering your fees
- No-cost loans
- Other requirements
- Home equity loan vs. HELOC
About home equity loan closing costs
Just like standard mortgage loan closing costs, home equity loan costs can be lumped into two groups: fees paid to the lender and fees paid to third parties. Lender fees tend to be a percentage of the loan amount. However, most third-party fees are set independently and reflect the work involved to help set up your loan.
Typical home equity loan closing costs:
- Loan origination fee (can be 1% or more of loan amount): These vary hugely from lender to lender. Some charge a modest flat rate while others levy a percentage of your loan’s value
- Appraisal (around $350): An appraisal determines the market value of your home as estimated by a professional appraiser. Most cost roughly $350. Some are higher or lower, but the majority are within $75 of that amount. A cheaper, all-digital appraisal is often an option for a home equity loan if your loan amount isn’t too large
- Document preparation and attorney's fees ($100-$400): Admin fees required to prepare all the documentation and closing paperwork for your loan
- Notary fee ($50-$200): In some places, those fees are per signature; in others, per document
- Title search ($75-$100): This confirms the home is still legally yours and has no outstanding, undeclared liens or other unknown restrictions on its use
- Credit report fee ($25-$50): The lender will pull your credit report and review your credit history prior to approving the loan
- Miscellaneous ($15-$50): There’s often a recording fee to lodge the legal papers with your state’s authorities. And some lenders charge for “extras” such as costs for postage and couriers
You’ll probably be offered discount points, too. Points allow you to pay more at closing in exchange for a lower interest rate. These can be good deals, but they’re not for everyone. So, explore your options.
Home equity loan closing costs: Example
As we said, home equity loan fees can vary widely between lenders. But just to give you an idea of how the upfront cost might shake out, let’s look at an example. Imagine you’re getting a $100,000 home equity loan and the lender charges a 1% origination fee.
|Origination fee||$1,000-$3,000 (1%-3%)|
|Document prep and attorney fees||$100-$400|
|Total closing costs||$1,615-$4,150|
You may be able to shop around with different suppliers for third-party services, like the appraisal and title search, to see if you can find one that charges less than you’ve been quoted. Talk to your lender about this and be sure to find providers your lender is willing to work with.
How are home equity loan closing costs determined?
The most expensive closing cost on a home equity loan is typically the origination fee, which is often based on a percentage of the loan value. So the amount you’re borrowing can have a big impact on the upfront fees you’re likely to pay.
For example, suppose your lender charges a 1% origination fee. On a $20,000 loan, 1% comes out to just $200. But on a $200,000 loan, you’d pay $2,000 for the origination fee alone.
Keep in mind that setting up a loan takes about the same amount of work for a lender regardless of loan size, and lenders have to cover their own fees no matter how much you’re borrowing. That means on a smaller loan, closing costs are likely to be a bigger percentage of the loan amount. The bigger your loan is, the lower your closing costs will likely be as a percentage.
Your choice of lender can also make a huge difference. Some charge a small, fixed origination fee regardless of the loan size. Others may charge 1%, 2%, 3%, or even more of the loan’s value.
How to save on your home equity loan fees
Unlike standard mortgage loans, home equity loans and home equity lines of credit (HELOCs) are not regulated by a central agency. So there can be a bigger variance in requirements and costs between lenders. That means shopping around for the best deal is essential.
As the Consumer Financial Protection Bureau (CFPB) says, “Home equity loans may have upfront fees and costs, so be sure to compare more than just your monthly payment when shopping around.”
You will receive a standard Loan Estimate for your home equity loan that is the same as one issued for any new mortgage. Collect estimates from several lenders and compare them. You’re looking for the overall deal that suits you best. See “How to read a mortgage Loan Estimate" for tips on how to compare these offers.
You can also negotiate with lenders to squeeze out the best deal. Tell lender A, for example, that lender B has a lower origination fee on its loan estimate. And ask Lender A to match it.
At the time of writing, lenders were originating (creating) many fewer mortgages than a year ago. This creates a more competitive environment where some polite but firm pressure could earn you lower closing costs or monthly payments — perhaps even both.
Can I get a home equity loan with no closing costs?
It’s possible to find home equity loans with no closing costs. But it’s almost inevitable that you’ll pay a higher interest rate than you would if you were to pay the fees upfront. And that means you could pay substantially more to your lender, in total, over the life of the loan.
You might be better off asking the lender to roll closing costs into your loan. In other words, you borrow what you need, plus closing costs. For example, let’s say you’re borrowing $20,000 and closing costs come out to $1,000 (5%). You could ask your lender to lend you $21,000 and deduct the fees from your loan amount at closing.
Yes, you’ll be paying interest on $21,000 instead of $20,000. But it may cost you less in the long run than a zero-closing-cost home equity loan with a higher rate.
Of course, you can’t be sure until you run the figures. So get Loan Estimates from lenders for both scenarios.
What else do I need for a home equity loan?
Closing costs are just one part of the home equity loan process. You also need to get approved for the loan amount you want based on your available equity and your personal finances.
To qualify for a home equity loan, expect to need:
- A credit score of 620 or higher: Many lenders insist on 650, 680, or even 700. But, if your finances are in otherwise great shape, it may be possible to qualify with a FICO score of 620
- At least 20% home equity: Most lenders require you to leave 15%-20% of your equity untouched after the home equity loan is cashed out. That means you need more than 20% of your equity available to borrow against, in most cases
- Debt-to-income (DTI) ratio of 43% or less: Your DTI is the percentage of your pretax monthly income that’s eaten up by fixed homeownership costs, your new loan payments, existing debt payments, minimum payments on credit cards, and inescapable obligations such as child support and alimony. The lower your existing DTI is, the more you can borrow on your home equity loan
That’s a quick summary. For more details and a list of the documentation you’ll need, see our full guide to home equity loan requirements.
Home equity loan closing costs vs. HELOC closing costs
Although they’re both second mortgages, HELOCs and home equity loans are very different from each other. No-closing cost HELOCs are a lot more common than no-closing-cost home equity loans — and they might provide a better deal.
Remember that HELOCs are almost always variable-rate loans, while home equity loans typically have fixed rates. As such, HELOC lenders are shouldering less risk if interest rates rise, because they can then pass higher costs on to borrowers. That’s likely the reason they can afford to offer low or no closing costs.
Is a HELOC a good alternative to a home equity loan?
It may be that a HELOC could suit your needs better. But don’t assume so. Those closing costs may look attractive, but a HELOC’s variable rates could prove dangerous. And these loans have a more complicated repayment structure compared to a home equity loan’s fixed rate and stable monthly payments.
Typically, a home equity loan is the better option when you know exactly how much cash you need for a large, one-time expense. A HELOC is often preferred by homeowners with ongoing financing needs who want to be able to tap their equity repeatedly over a longer period of time.
The decision isn’t a simple one, and it shouldn’t be made based on upfront costs alone. So work closely with your loan officer to compare HELOC and home equity loan options before choosing. You can also read our article on HELOC vs. home equity loan pros and cons for more details.
Your next steps
Don’t get too hung up on closing costs. Home equity loans can be a seriously inexpensive and relatively safe way to borrow money.
Are you ready to explore your options? Start by getting quotes from a few different lenders. Check the interest rates, monthly payments, and upfront costs on each offer to find the best overall deal for you.