HELOC Vs. Home Equity Loan Closing Costs: Know The Difference

Tapping into the equity of your home has a handful of perks — easier, quicker access to funding, potentially lower interest rates than other loans and predictable payments, to name a few. And whether you’re considering a HELOC or home equity loan, you'll want to consider the closing costs.

Here, we'll walk you through the difference between HELOC closing costs and home equity loan closing costs, how much they are, and how to lower them or avoid them entirely.

Do HELOCs Have Closing Costs?

A home equity line of credit (HELOC) does have closing costs, typically falling between 2% to 5% of the loan amount. This is usually taken out of the loan proceeds. So if you're taking out a $20,000 HELOC, anywhere from $400 to $1,000 will likely go toward closing costs.

Do Home Equity Loans Have Closing Costs?

Home equity lines of credit (HELOC) and home equity loans are both ways you can tap into the equity in your home. They both can be used for a variety of things, such as helping pay for higher education, home improvement projects and for large-ticket purchases.

While the two are commonly mixed up, a HELOC is a form of revolving credit, which works quite similar to a credit card. A HELOC, on the other hand, is a type of installment loan, which is a loan where you get a single lump sum of money upfront.

How Much Are Home Equity Loan And HELOC Closing Costs?

Let's look at common HELOC closing costs you can anticipate footing the bill for:

• Application fee. This covers the costs of filing your application and putting you into the system as a loan customer. This can be anywhere from $100 to $200.
• Notary fee. A fee you'll need to pay to get official HELOC documents notarized. This usually costs about $20.
• Title search. This is to help the lender ensure you are indeed the rightful owner of the property and that there aren't any issues with the title, such as unpaid taxes or easements. This can be anywhere from $75 to $200.
• Appraisal fee. An appraisal of your home is necessary to figure out how much you can borrow against your equity. This is anywhere from $600 to $2,000.
• Credit report fee. Some lenders may charge a fee to run a credit check, costing anywhere in the $20 to $50 range.
• Attorney fee or document preparation fee. Before a HELOC gets the final sign off, a lawyer may need to look over the documents, depending on the state you’re in. Attorney fees are 0.5% to 1.0% of the loan amount.
• Loan recording fee. This is a small fee made to the county recorder and other local officials They will record the new lien that's now against your home. This can be anywhere from $15 to $50.

Here are some home equity loan closing costs you can expect to pay:

• Appraisal fee. An appraisal fee depends on the location, but you can usually expect to pay $600 to $2,000.
• Credit report fee. Your lender will need to pull your credit file before approving you for a HELOC. This will cost between $20 – $50.
• Attorney fee or document preparation fees. Hiring an attorney to look over your home equity loan documents is usually anywhere from 0.5% to 1% of your loan amount.
• Origination fee. A mortgage origination fee will be charged to cover the cost of underwriting and gathering your financial information. This is usually about 0.5% to 1% of your loan amount.
• Notary fee. Should you need documents notarized during the loan-closing process, a real estate notary will cost about $20.
• Title search fee. Your lender will order a title search before giving your home equity loan the green light. It will flag any liens or other-party ownership claims against your home. A title search fee usually hovers between $75 – $200, and depends on your location.
• Title insurance costs. Title insurance protects your lender from any ownership claims against your home, and is usually $500 to $3,500 for a lender's title policy.

Ongoing HELOC Fees

Besides one-time closing costs, which are due after you finalize your loan, there are also ongoing HELOC fees.

Let's walk you through recurring HELOC fees you can expect to pay:

• HELOC annual fee. This is a type of membership fee that a lender might charge to keep your HELOC open each year. This is anywhere from $5 to $250 a year.
• HELOC termination fee. If you decide to pay off your loan early, you might get hit with a prepayment fee depending on your lender. The fees vary but are usually a percentage of the loan and might only be charged within the first few years after you opened the HELOC.
• HELOC inactivity fee. You might need to pay a small fee if you don't draw money from your HELOC enough.
• HELOC transaction fee. You might need to pay a fee every time you borrow against your HELOC.

How To Lower Or Avoid HELOC And Home Equity Loan Closing Costs

These costs can eat into your loan funds and get expensive over time. Here are some ways you can lower or eliminate HELOC and home equity loan closing costs altogether:

Explore Your Options

Shop around and compare lender rates to make sure you're getting the best deal possible. For example, you can look for lenders that might drop fees if you set up autopayments. Getting quotes for the same loan amount and terms can help you figure out which lenders offer the lowest interest rates.

Use A No-Closing Cost HELOC Or Home Equity Loan Lender

Some lenders offer a no-closing cost option on your HELOC or home equity. While this can save you on closing costs, the lender might offer higher interest fees or increase the loan amount. It's a good idea to pay close attention to the terms and conditions if you're thinking of going this route.

Another option? Some lenders might waive some of the closing costs and fees as a special offer to get you to finance with them.

Take Out A Smaller Amount

Because closing costs are a percentage of the total loan amount borrowed, a smaller home equity loan or HELOC will decrease the borrower's closing costs.

Boost Your Credit

While having strong credit might not necessarily lower your closing costs, they can help you get approved for lower interest rates. In turn, you can save on the cost of the loan. To start, you can order a credit report and see if there are any errors or inaccuracies that might lower your score.

The Bottom Line

Getting a HELOC or a home equity loan and knowing how this can impact the closing costs you have to pay can help you land on the best choice for you. You'll also want to factor in any ongoing fees. Looking into ways to lower or avoid closing costs altogether can help you shave off a few dollars.

The Rocket Money^SM app can provide spending insights and help you stay on top of debt payments and bills. If you want to manage their finances in one place, you can download the app today.