Learn about the key costs involved in closing a home equity loan, including fees, interest rates, and loan options. Understand how to minimize expenses and explore alternatives like cash-out refinancing, especially for veterans. This guide helps homeowners navigate the financial aspects of borrowing against their home equity effectively.

Essential Costs to Consider When Securing a Home Equity Loan

After purchasing a property, homeowners can qualify for a home equity loan, which typically requires building sufficient equity over time. To be eligible, your remaining mortgage balance generally must be less than 80% of your home's value after the loan. A home equity loan provides a lump sum up to approximately 85% of your available equity, influenced by factors like income, credit score, and market value.

Loan amounts typically range from $1,000 to $25,000. Closing fees are often between 2% and 5% of the borrowed amount, covering application, appraisal, legal, and document preparation costs. Comparing offers from multiple lenders can help reduce these expenses. Some lenders provide no-closing-cost options, where fees are included in the loan or waived, although this might mean higher interest rates. Currently, interest rates on home equity loans vary from 5.31% to 5.44%. While VA home equity loans are unavailable, veterans can opt for cash-out refinancing up to 100% of their home's value as an alternative for cash access.