Home equity loans are a popular way to tap into your home’s value for major expenses — such as renovations, debt consolidation, or education costs. While these loans typically offer lower interest rates than credit cards or personal loans, they come with a price tag that often surprises borrowers: closing costs.
Just like when you bought your home, taking out a home equity loan involves fees that can add thousands of dollars to the cost of borrowing. In this article, we’ll break down what home equity loan closing costs include, how much you can expect to pay, ways to reduce or avoid them, and how to prepare before signing on the dotted line.
What Are Home Equity Loan Closing Costs?
Closing costs are the fees and expenses you pay when finalizing a home equity loan. They compensate lenders, title companies, appraisers, and government entities involved in issuing and securing your loan. These costs are typically paid at the time of loan funding, though some lenders allow you to roll them into the loan amount.
Typical Home Equity Loan Closing Costs
The exact costs vary based on your location, lender, and loan amount, but here are the most common fees:
1. Application Fee
Some lenders charge an upfront application fee to process your loan request, ranging from $50 to $500.
2. Appraisal Fee
To determine the current market value of your home, lenders often require a professional appraisal. This fee can cost between $300 and $700.
3. Title Search and Title Insurance
A title search ensures there are no liens or ownership disputes on your property. Title insurance protects the lender (and optionally the borrower) against claims. Expect fees of $200 to $1,000+, depending on your state and loan amount.
4. Credit Report Fee
Lenders pull your credit to assess risk. This generally costs around $25 to $50.
5. Document Preparation Fee
This fee covers the cost of preparing legal loan documents. It may range from $100 to $400.
6. Notary and Recording Fees
States and counties charge to notarize and officially record your loan. These fees are usually under $200 combined.
7. Flood Certification
Lenders may verify if the property lies in a flood zone, especially in high-risk areas. This costs $15 to $30.
8. Points or Origination Fees
Some lenders charge an origination fee, typically 0.5% to 2% of the loan amount. For a $100,000 loan, that’s $500 to $2,000.
Average Total Closing Costs for Home Equity Loans
On average, home equity loan closing costs range from 2% to 5% of the loan amount.
Here’s a quick estimate based on loan size:
| Loan Amount | Estimated Closing Costs (2%–5%) |
|---|---|
| $50,000 | $1,000 – $2,500 |
| $100,000 | $2,000 – $5,000 |
| $200,000 | $4,000 – $10,000 |
Some lenders advertise “no closing cost” home equity loans — more on that below.
Why Do These Costs Exist?
Unlike credit cards or personal loans, home equity loans are secured by your home. That means the lender assumes legal and financial risk — and conducts due diligence to verify property ownership, assess value, and comply with lending laws. Closing costs cover this process and protect the lender (and borrower) in the event of disputes, defaults, or legal claims.
Home Equity Loan vs HELOC Closing Costs
While both are secured by your home’s equity, home equity loans and home equity lines of credit (HELOCs) often come with different cost structures.
| Cost Type | Home Equity Loan | HELOC |
|---|---|---|
| Appraisal Fee | ✔ | ✔ |
| Title Fees | ✔ | ✔ |
| Origination Points | Sometimes | Rarely |
| Ongoing Fees | No | Yes (annual or transaction fees) |
| Closing Costs | 2–5% | 1–3% |
If you’re choosing between a HELOC and a fixed home equity loan, weigh both closing costs and long-term payment predictability.
Can You Avoid Home Equity Loan Closing Costs?
Yes — but read the fine print. Some lenders advertise “no closing cost” home equity loans, which may sound appealing, but here’s what that usually means:
- Higher Interest Rate: Lenders may recoup their costs with slightly higher rates.
- Early Payoff Penalty: You might pay a penalty if you repay or refinance within 2–3 years.
- Limited Loan Sizes or Terms: Promotional offers may apply only to small loan amounts.
It’s essential to calculate the total cost over time. A “free” loan today could be more expensive over its lifespan.
How to Minimize Your Closing Costs
1. Shop Around
Request loan estimates from multiple lenders. Some may waive or discount certain fees to win your business.
2. Ask for a Fee Breakdown
Request a line-item disclosure of fees and ask which are negotiable. Some lenders may reduce or eliminate administrative costs.
3. Leverage Existing Relationships
Credit unions or your current mortgage lender may offer discounted rates or closing costs to existing customers.
4. Consider Bundling
Some homeowners roll a home equity loan into a refinance package, reducing total closing costs with one transaction.
5. Improve Your Credit Score
Higher credit scores can help you qualify for better terms and lower origination fees.
Questions to Ask Your Lender About Closing Costs
- What is the total estimated cost to close this loan?
- Can I roll closing costs into the loan amount?
- Are there any fees you can waive or reduce?
- Is there a prepayment penalty?
- Do you offer no-closing-cost options?
These questions help ensure transparency and allow you to compare offers more effectively.
Real-Life Example of Home Equity Loan Closing Costs
Case Study: Maria is a California homeowner borrowing $150,000 through a home equity loan to renovate her kitchen and bathrooms. Here’s what her closing cost estimate looked like:
- Application Fee: $100
- Appraisal: $550
- Title & Recording: $875
- Credit Report: $35
- Document Prep: $250
- Origination Fee: $1,500 (1%)
Total Closing Costs: $3,310 or 2.2% of her loan amount.
By shopping around and leveraging her bank relationship, she saved over $800 compared to her first loan estimate.
Final Thoughts: Are Closing Costs Worth It?
Paying 2%–5% in closing costs might seem steep, but when used wisely, a home equity loan is a powerful financial tool. If you’re using it to invest in your property, pay off high-interest debt, or fund education, the long-term benefits can outweigh the upfront fees.
The key is to understand what you’re paying for, compare options, and look for ways to reduce or negotiate fees where possible.
Ready to Tap Into Your Home’s Equity?
Thinking about a home equity loan but unsure about closing costs? Let’s walk you through your options, compare loan offers, and help you understand the true cost of borrowing. At O1NE Mortgage, we’ll guide you every step of the way — with transparency, low fees, and personalized advice.
Call us at (866) 688-9020 or apply online today.
