A Guide to HELOC Closing Costs

If you’re thinking about a HELOC, you may be considering it for the flexible access to your home’s equity without refinancing your entire mortgage balance. While these credit lines can be more cost-effective upfront, they may come with fees that affect your overall borrowing costs. This article breaks down the closing costs you might owe, which are the most common, and how they compare to those of alternative financing options.

Do HELOCs Have Closing Costs?

Closing costs are a big portion of your financial responsibility when purchasing a home. Home Equity Lines of Credit (HELOCs) can be a cost-effective way to access available home equity.

Some lenders offer options with no closing costs, but they may come with some trade-offs, like higher annual fees, higher interest rates, or keeping the line of credit open for a set number of years. A financing option with no closing costs sounds convenient, especially if you’re looking for an arrangement with lower upfront expenses, but higher long-term costs can outweigh initial savings, so weigh your options to choose the option that best aligns with your financial goals.

How Much Are HELOC Closing Costs?

Closing costs for HELOCs typically amount to 2%-5% of the total line amount. For example, if you entered a HELOC valued at $100,000, you can expect to pay between $2,000 and $5,000 at closing. Closing costs can still vary in price, considering they consist of multiple fees instead of one single charge. Components like title insurance and appraisal fees usually sit at lower price points, while title searches may have higher price points.

Types of HELOC Closing Costs

HELOC closing costs cover the administrative work lenders do to set up the line of credit. Some expenses go to third parties who conduct appraisals and title searches, but others vary and can be waived by your lender. Since HELOC closing fees can vary by transaction, it's helpful to understand each charge individually.

Home Appraisal

Appraisals are the most common way of understanding your home’s value and available equity to borrow against. A standard home appraisal can greatly vary in cost depending on factors like size and location, but can start around $300, potentially costing more.

Title Search

A property title search is a review executed by title companies to check the property’s ownership and identify any outstanding liens, encumbrances, claims, or debts that could affect its transfer. These reviews can cost anywhere between $75 and $250 or more, and prices vary based on where a property is located and how complicated its ownership history is.

Title Insurance

For lenders, title insurance is an additional safety net that protects against any future title disputes. Title insurance and service fees may be required as part of a HELOC closing process depending on your state and local laws, and your lender.

Origination Fee

Origination fees may total around 0.5% to 1% of the borrowed amount. Generally, origination expenses cover the lender's administrative labor used to set up the HELOC, including processing and underwriting fees. Depending on the property size, lender, and other factors, fees are subject to change. Since fees vary by lender it’s worth weighing your options to see what you’re financially responsible for at closing.

Annual Fee

Some lenders will charge annual fees and ongoing expenses to keep your HELOC open, and if applicable, these charges are typically disclosed in loan disclosures. Your lender’s policies, total credit limit, and whether you chose to waive annual fees for your first year are all taken into account when setting your annual fee.

Inactivity Fee

For HELOCs with a revolving line of credit, inactivity fees may apply if you open a HELOC and don’t use it. These costs are used to cover the maintenance costs of keeping an unused line of credit. If you're not sure you'll use the money, it might be wiser to hold off on creating the account.

Early Termination Fee

Some lenders require recent homeowners to keep a HELOC open for 2 to 3 years, and they may have the right to charge an early termination fee or prepayment penalty if you close your credit line early. These fees can vary depending on your lender and the size of your credit line.

Transaction or Withdrawal Fee

Each time you withdraw funds from your HELOC, it costs money for lenders to process the transactions, which is why some charge a $5-$25 transaction fee for each withdrawal. Some lenders choose to waive them, and others include requirements like minimum withdrawal amounts, which can be anywhere from a few hundred dollars up to $1,000 per withdrawal.

HELOC vs. Home Equity Loan vs. Cash Out Refi Closing Costs

Closing costs can vary among financing options. HELOCs are different from a home equity loan, and an alternative way to access home equity could be through a cash-out refinance, so review each of your options to see whether a HELOC is right for you.

Final Thoughts: Planning for HELOC Closing Costs

HELOCs are a great way of accessing your home equity, especially if you’re looking for flexibility and lower upfront costs, but these savings can vary depending on your lender, lending terms, property size, and location. Some fees have much higher price points than others, and some can be charged as flat fees or percentages of the credit line. To get a better idea of your eligibility for a home equity line of credit, check out their benefits and requirements, and get prequalified online to find a HELOC that fits your financial plans.