Understanding Home Equity Loan Closing Expenses You Need to Know

After purchasing a home, you become eligible to apply for a home equity loan. Since home equity develops gradually over time, it may take several years to qualify. To secure such a loan, homeowners typically need to maintain at least an 80% loan-to-value ratio after the loan approval. A home equity loan provides a fixed sum of money secured by your property. Borrowing up to 85% of your home's equity is possible, but the actual loan amount depends on income, credit history, and current market value.

Minimum borrowing amounts can vary widely, ranging from $1,000 to $25,000 or more. Typically, closing costs range from 2% to 5% of the loan amount. These costs include application fees, document preparation charges, appraisal fees, attorney fees, and sometimes points that lower interest rates. Negotiating with lenders can help reduce these fees and save money. Some lenders offer no-closing-cost options, where fees are waived or rolled into the loan, but this may lead to higher interest rates. Current home equity loan interest rates are approximately between 5.31% and 5.44%. While VA-specific home equity loans are not available, veterans can use cash-out refinancing options to access up to 100% of their home's value, offering a competitive alternative.