A home equity loan is a popular way to borrow money for a home improvement project, to consolidate debt, or pay unexpected expenses, for example. It may even be possible to use a home equity loan to purchase a new home.
Because these loans are backed with the equity in your home, they usually have lower interest rates than other borrowing options. They can also be obtained relatively quickly. Depending on the lender, how long it takes to obtain a home equity loan may be 1-6 weeks.
Before you apply for a home equity loan, it’s important to understand the impact that closing costs can have on the cost of borrowing. There are some ways, however, that you can either reduce or eliminate this expense.
What Are Home Equity Loan Closing Costs?
Closing costs are fees that are assessed by your lender to process your loan. Some may also go to your local government or to third parties to pay for a home inspection, appraisal, title insurance, or filing fee.
It’s important to point out that not all lenders charge closing costs on their home equity loans. Greater Texas Credit Union, for example, offers home equity loans without closing costs.
The following are some common home equity loan closing costs you may encounter.
Loan Origination Fee
This fee covers the cost of loan processing as well as the underwriting and loan execution. The loan origination fee is usually 0.5-1% of the loan amount.
Credit Report Fee
When applying for a home equity loan, your lender will check your credit to make sure you have a good score. The credit report fee is usually $10-$100.
Appraisal Fee
Most lenders require an appraisal to be done on your home to qualify for a home equity loan. Determining the current market value is necessary to ensure you have enough equity for the loan amount. The fee for this service is usually $300-$450.
Document Preparation and Attorney Fees
Various documents will need to be created for your home equity loan. Signatures may need to be witnessed by a notary public and an attorney may also be required to ensure the documents are compliant with all laws and regulations. The fee for this service is usually $100-$400.
Document Filing Fee
Some localities charge filing fees for loan documents. The fee varies depending on where you live.
Insurance
Certain types of insurance policies may be required to qualify for a home equity loan. They may include title insurance, homeowners insurance, flood insurance, and others.
Local Taxes
A local government may assess a tax on your home equity loan. Depending on where you live, the tax may be 1-3% of the loan amount.
Title Search
A title search may be required to ensure that no one has any claims or liens on your home. This is necessary because the equity you have in your home is used as collateral. The title search fee could be $100-$450.
Points
A "point" is a fee that you can pay upfront to lower your interest rate. Purchasing points is optional, and each point will lower your interest rate by a quarter of a percent. Each point will cost 1% of the total amount of your loan.
How to Lower Your Home Equity Loan Closing Costs
Although many lenders charge closing costs on their home equity loans, there are some strategies you can use to save money on these fees. You may also be able to eliminate some or all of them.
Pay Off Current Debts
When considering you for a home equity loan, lenders will evaluate your current debts to make sure you aren't overextended. If more than 43% of your gross monthly income is used to pay your monthly debts, paying down some of your debts before applying may give you more options for paying the closing costs.
You may be given the option to finance the closing costs, for example, by adding them to the principal. This will help you avoid having to come up with the money upfront.
Compare Different Lenders’ Loans
Not all lenders have the same closing costs or the same interest rates. So before you apply for a home equity loan, be sure to compare different lenders’ loan terms, interest rates, and closing costs. This will help you find the best deal to help you save money.
Be Sure to Negotiate
Some closing costs may be negotiable. A lender may be willing to lower or waive some costs, for example, if you’re a long-term customer. Be sure to ask about the fees to see if your lender will consider waiving some of them. You'll never know unless you ask.
Only Borrow What You Need
When applying for a home equity loan, you may be tempted to borrow more than you need. You may want to borrow more to buy something you want, to have some extra cash on hand, or for another reason. Borrowing more than you need, however, could result in higher closing costs.
The closing costs for home equity loans are typically 2-5% of the loan amount. The more you borrow, the higher the fees will be.
Find a Lender That Offers Home Equity Loans Without Closing Costs
Perhaps the easiest way to save money on home equity loan closing costs is to simply choose a lender that doesn’t charge any, like Greater Texas Credit Union. Depending on the amount you are borrowing, the savings could be significant.
Home Equity Loans With Greater Texas Credit Union
If you’re thinking about borrowing against the equity in your home, Greater Texas Credit Union offers a home equity loan with a competitive interest rate. Our home equity loan also doesn’t have any closing costs, which will help you save money.
The application process is simple and quick. If you have any questions, you can contact one of our Loan Department representatives by phone or by online message for assistance.
Click on the following link to learn more about our home equity loans.
