How much are HELOC, home equity loan closing costs?

If you're a homeowner looking for extra cash to finance a major purchase, pay down debt or cover budget gaps, you don't necessarily have to turn to high-interest financing options like credit cards or personal loans. You have a funding source closer than you may realize: your home.

When you've lived in your home for a while and have been paying down your mortgage, you build home equity. You can tap into this equity in the form of a home equity loan or home equity line of credit (HELOC), often at rates significantly lower than other forms of financing. 

You must consider the whole picture, however. In addition to any interest you incur on these loans, you'll also face closing costs when the transaction is finalized. In this article, we'll outline the fees you should factor into the cost of getting a home equity loan or HELOC.

If you think a home equity loan or HELOC may be right for you, start exploring your options here.

How much are HELOC, home equity loan closing costs?

Closing costs tend to total 2% to 5% of the total borrowed amount. You may be able to roll them into the loan balance, but that means you'll pay higher interest over the course of the loan. These costs consist of:

• Origination fee: Lenders charge origination fees for providing a loan. They may use this fee to cover expenses related to application processing, underwriting, funding the loan and other administrative services. The amount of this fee varies by lender and may be a flat amount or a percentage of the loan amount.
• Credit report fee: Your credit score helps lenders determine how likely you are to repay the loan. To examine your score, they pull your credit report. This typically costs between $20 to $50.
• Appraisal fee: Since home equity loan and HELOC amounts are based on your total home equity, lenders usually require an appraisal to get an accurate picture of your home's current market value. This fee averages $350 for single-family homes of up to 2,000 square feet, according to HomeAdvisor. The fee increases by $25 for each additional 500 square feet.
• Title fees: A title search checks whether there are any liens (legal claims) on the property you're pulling equity from, which can hamper your ability to get a loan. Title fees typically range from  $75 to $250, depending on the home's location.
• Document preparation fees: Processing and closing a loan requires a lot of paperwork, as well as attorney's fees and notary signatures. These costs vary by lender.
• Filing fees: Since your home serves as collateral for your home equity loan or HELOC, it creates a lien on your property. This lien must be filed with your county recorder, such as your county clerk's office. Filing fees vary by county but are typically $20 to $50.
• Points: Some lenders allow you to pay more upfront in the form of points. As the Consumer Financial Protection Bureau (CFPB) explains, "Points let you make a tradeoff between your upfront costs and your monthly payment. By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time." A point equals 1% of the total amount you borrow. HELOCs typically do not use points.

Additional HELOC costs to consider

While home equity loans and HELOCs have similar closing fees, HELOCs may come with additional costs, which vary by lender. These are:

• Annual fees: Some HELOCs charge an annual fee each year the line of credit is open. You must pay this fee whether or not you withdraw funds from the HELOC during the year.
• Transaction fees: If your lender charges transaction fees, you'll incur a fee each time you draw from your line of credit.
• Inactivity fee: If you don't make a certain number of transactions within a certain period, your lender may charge you an inactivity fee.
• Early termination fee: Some lenders penalize you for paying off and closing your HELOC before the term ends. You may have the option to pay the line of credit off but keep it open until the term ends to avoid this fee.

Check out home equity loan and HELOC rates today to see what you might qualify for.

The bottom line

Some lenders offer no-closing-cost home equity loans and HELOCs, but these products generally have higher interest rates and early termination fees. If your lender does not, or if you'd rather go the traditional route, there are ways you can reduce your closing costs.

Before applying for a home equity loan or line of credit, boost your credit score and lower your debt-to-income (DTI) ratio by paying off existing debt. This can help you qualify for better rates when you apply. When you're ready to start searching, carefully compare your options and don't be afraid to negotiate closing costs with lenders. They may or may not be flexible, but it doesn't hurt to ask.