Understanding Key Costs When Closing a Home Equity Loan
Discover essential costs associated with closing a home equity loan, including fees, interest rates, and options like no-closing-cost loans. Learn how to negotiate better rates and understand VA refinancing options for veterans, ensuring informed borrowing decisions.
Understanding Key Costs When Closing a Home Equity Loan
Once you purchase a property, you become eligible to apply for a home equity loan. Since building sufficient equity takes time, it may take several years before qualifying for such a loan. Typically, approval requires that your remaining mortgage balance does not exceed 80% of your home’s value after the loan is secured. A home equity loan allows borrowing a fixed amount against your property, often up to 85% of your equity, influenced by income, credit history, and current market value.
Minimum borrowing amounts can vary significantly, from as low as $1,000 to as high as $25,000. At closing, fees typically range from 2% to 5% of the loan amount. These costs include application fees, document preparation charges, appraisal fees, attorney fees, and sometimes points paid to reduce interest rates. Shopping around with multiple lenders can help negotiate lower fees, saving you money.
Some lenders offer no-closing-cost home equity loans, where fees may be waived or incorporated into the loan, often resulting in higher interest rates. Current home equity loan interest rates fall between 5.31% and 5.44%. While VA home equity loans are not available, veterans can access cash-out refinancing, which allows borrowing up to 100% of the home’s value. This acts as a competitive alternative for veterans seeking cash from their home equity.
