Home Equity

How to Get a Home Equity Loan in Arizona

September 14, 2022

Looking to get a home equity loan in Arizona? Here’s how it works, how to qualify, and how to know if it’s the right choice for your finances.

There are several options available if you’re looking for a loan in Arizona. You’ve worked hard to build up equity and now you want to use it to help you accomplish a goal. The most common scenarios for needing to use home equity include:

Pay off other debt
Buy an investment property
Fund home improvements
Cover a large expense

Getting a Home Equity Loan in Arizona – The Common Options

When looking for a loan in Arizona, you can typically choose between either a home equity loan or a home equity line of credit.

A home equity loan is also known as a second mortgage as it is a debt that is secured by your property. With this type of loan, you would receive a lump sum loan with a fixed interest rate. You pay the same amount every month for a specified period of time.

The home equity line of credit, or HELOC, works more like a credit card. The lender approves you to borrow a certain amount and you can draw from it as you need, provided that you make agreed-upon repayments. The interest rate is adjustable, meaning that it shifts with the market, but you pay interest only on the amount you owe.

Home Equity Loan Requirements in Arizona

In order to qualify for a home equity loan in Arizona, there are some requirements that must be met by the borrower. Here are some of the most relevant for you as a homeowner.

Qualifications

When you apply for a home equity loan in Arizona, lenders like to see borrowers having at least 15% to 20% equity in the property and a 620 credit score at a minimum.

Once you have proven your credit score and equity, you will need to show Proof of Income and Employment. If you are a W-2 employee, then you will need to provide the lender with paystubs for the last 30-60 days. You should also have the last pay stub of the previous year or a copy of last year’s W-2.

If you are self-employed, you will need a few more additional items, such as signed copies of the previous two years’ tax returns and a profit and loss statement for the current year.

For a retired borrower, you’ll need to provide any income statements, such as any recent Social Security or pension statements.

Next, you’ll need to provide documentation of your homeowner’s insurance, any HOA dues or fees to show you are in good standing, and a breakdown of your assets like bank statements, retirement account statements, mortgage statements, and any other brokerage accounts from the last 60 days.

The next step in getting a home equity loan in Arizona will include sharing your current debts with the lender to determine your debt-to-income. This is an important step in the process to help ensure you are capable of repaying your loan.

You may be asked to share any other records as well, which can include any divorce decrees, previous bankruptcy or foreclosure records, trust documents, and any other financial documents before they approve you for a home equity loan.

Home Equity Loan Rates in Arizona

Your rate for a home equity loan or HELOC will depend on when and where you apply. Rates for a HELOC, as of September 2022, range from around 3 percent to just above 7 percent through such lenders as:

BMO (6.89% APR, $0 minimum initial draw)
Bethpage Federal Credit Union (6.0%, $25,000 minimum initial draw)
National Bank of AZ (5.5%, $0 minimum initial draw)

Your interest rate and the monthly payment will vary based on your finances. A lower credit score will typically result in higher interest rates.

What If I Can’t Get a Home Equity Loan in Arizona?

If you’re looking for a home equity loan in Arizona but have bad credit, meaning a score below 620, you might have trouble getting a home equity loan. With a home equity loan or HELOC, your property is your collateral. This means that if you default on a home equity loan, you could lose your home.

Home Equity Loan Alternatives in Arizona

If you find yourself unable to qualify for a home equity loan or home equity line of credit, don’t get discouraged. There are other options. If you’re 62 years old or older, you can get a reverse mortgage, which lets you cash out your equity while staying in the home. This option provides many older adults with an answer to their financial strains after retirement or medical bills throw a wrench in their lives. However, it’s important to recognize that the entire loan must be paid back when the borrower dies, moves out permanently, or sells the home.

There’s also an option known as a sale-leaseback which enables you to sell your home, convert the equity to cash, and remain in place as a renter until you’re ready to move out or repurchase the home.

Key Takeaways

If you’re looking to get a home equity loan in Arizona, it’s important to know what to expect. If you are looking for an alternative solution, talk to a financial advisor to learn more about your options.

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