Are there closing costs on a HELOC?
Like traditional mortgages and home equity loans, there are closing costs associated with closing on a HELOC. Closing costs are paid by the loan applicant(s) at the time the loan is granted and cover various costs associated with processing the loan application and essentially, making the loan happen. Some lenders may waive certain HELOC closing costs (such as the application fee) and the loan applicant will pay HELOC closing fees for services performed (such as a home appraisal).
Read on to learn more about HELOC closing costs.
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What are HELOCs and how do they work?
A HELOC is a type of secured loan that lets you borrow money as a line of credit. A line of credit limit is determined by the lender based on several factors, including the equity in your home, your property’s fair market value, and your credit score. Generally, the more equity you have, the higher the amount of credit you’ll be approved for.
A secured loan requires the borrower to pledge an asset as collateral to “secure” the loan. With a HELOC, your home is the collateral securing the loan. This means if you fail to repay the loan the lender can foreclose and take your home.
Getting a HELOC is a straightforward process, and many homeowners benefit greatly from their HELOC. HELOC funds can be used for a variety of things, including making home renovations, paying off high-interest debt, paying for college tuition and even as a down payment on a second home or investment property.
How much are HELOC closing costs?
Applying for and getting a HELOC is a relatively simple process. If you’ve already purchased a home, you will recognize similarities to mortgage closing costs.
HELOC closing costs tend to average between 2-5% of the total loan amount.
HELOC closing cost breakdown:
Whether you’re buying or selling a home, the completion of the transaction is finalized with a “closing.” HELOC closing costs are fees associated with the loan transaction between you, the consumer (borrower) and a lender, such as a credit union or bank. If you have already purchased a home, you may be familiar with closing cost terminology.
Each lender will have its own specific HELOC closing costs. However, here is an overview of the typical closing costs associated with HELOCs.
Origination fee. This fee is for the lender’s work to originate or create the mortgage loan application.
Appraisal fee. An appraisal of your home’s value will be required to help determine the loan-to-value (LTV) ratio of your property, which will be compared to the loan amount you are seeking. If your LTV is too high, the loan is considered high risk and the offered interest rate will be higher, or the loan will be denied.
Credit report fee. All lenders will ask permission to do a hard inquiry of your credit score. This fee is charged for the work related to examining your credit.
Title search fee. The lender or a title company will perform a title search to see if there are other liens on the property, such as a bank lien, other HELOCs or home equity loans, or claims for unpaid property taxes.
Document preparation fees. The lender’s attorney or other staff will be preparing your loan documents, and this fee covers those services.
Loan recording fee. A HELOC is considered a second mortgage and will be recorded with your county’s public records office and with the credit bureaus.
Notary fee. A Notary Public will attend the closing and verify your identity as you sign the loan documents.
Is it possible to avoid closing costs on a HELOC?
Yes, it is certainly possible to avoid closing costs on a HELOC or, at the very least, pay less. Not all HELOC closing costs can be avoided, but some may be negotiated or waived.
For example, CU SoCal believes in making a difference, not a profit, which is why we’re committed to reducing or eliminating fees wherever we can. In addition to waiving the traditional appraisal fee, we’ve eliminated any closing costs as well.
Some lenders charge more closing costs than others, so be sure to ask for a list of average closing costs on a HELOC and related fees, before signing for a HELOC.
If you are trying to avoid HELOC closing fees, keep in mind that doing so may require some shopping around. If you can secure a low interest rate from a lender with higher closing costs, a lower interest rate could save you thousands of dollars over the term of your loan, moreso than a few hundred dollars in closing costs.
How do HELOC closing costs compare to primary mortgages?
HELOC closing costs tend to be lower as compared to closing costs on a first mortgage. This is primarily due to the lower loan amount. Credit unions typically do not charge origination fees, loan maintenance fees, and other closing costs.
How long does it take for a HELOC to close?
HELOCs can be processed rather quickly, and funds are dispersed in approximately two to six weeks.
How long it takes to get a HELOC ultimately depends on a combination of factors including the lender’s general HELOC processing time and how quickly you can supply the lender with the
required HELOC documentation.
Additional HELOC-specific fees
Here are some additional HELOC-specific fees a lender could require at closing or after closing:
Transaction fees. Lenders may assess a fee for withdrawals you make from your HELOC.
Account maintenance fees. This could take the form of an annual fee assessed to your account, whether you draw from your line of credit or not.
Inactivity fees. Many lenders will charge an annual inactivity fee if you do not use or withdraw any funds for use.
Minimum balance fees. Lenders may require require that HELOC accounts maintain a specific loan balance and charge fees if the minimum is not maintained.
When accepting a HELOC, be sure to get a list of lender fees for closing and after closing so you don’t end up paying more than you expected for your HELOC.
Why Savvy Consumers Choose CU SoCal
For over 60 years, CU SoCal has been providing financial services, including HELOCs, car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our HELOC experts.
Get Started on Your Home Equity Loan Today!