Home Loans In Alabama

Welcome to Capital Home Mortgage Alabama at Premier Mortgage Resources. Alabama is located in the Southeastern region of the United States, with Tennessee and Georgia to the north, Florida and the Gulf of Mexico to the south, and Mississippi to the west. Alabama is the 30th largest state by land area and the 24th most populous state in the United States.

Alabama is renowned for its Southern hospitality, barbecue, and contribution to the Civil Rights Movement. Additionally, it is the location of the earliest Mardi Gras celebration in the United States. It comprises 461 municipalities, 174 cities, and 287 villages, divided into 67 counties. 

In 2023, home sales in Alabama were down 18.8% compared to the previous year. In April 2023, the average home price decreased by 12.7% annually to $235,087. Compared to a year ago, the median sales price decreased by $18,145 to $212,276.

According to some experts, real estate in Alabama is a wise investment in 2023 because it frequently offers excellent returns, tax benefits, and diversification.

Home Loan Programs in Alabama

Home buyers in Alabama can choose from a range of mortgage options. Here’s a rundown of the choices:

• Conventional Mortgage

Conventional mortgages account for the vast majority of all home loans. They are mortgage loans that are not guaranteed or insured by the federal government, such as the Federal Housing Administration (FHA), the United States Department of Agriculture (USDA), or the Department of Veterans Affairs (VA). Private lenders, such as banks, credit unions, or mortgage companies, often make these loans available. Furthermore, because Fannie Mae and Freddie Mac acquire many conventional loans, many lenders require borrowers to meet the requirements of these institutions.

Borrowers must generally meet the following requirements to qualify for a conventional home loan:

• Have a credit score of at least 620.
• Maintain a debt-to-income ratio of no more than 43%.
• A 20% or higher down payment is required to avoid mortgage insurance. Some programs, however, may allow borrowers to qualify with as little as 3% down. A conventional loan’s typical down payment requirement is 5% of the sales price.
• Meet the precise standards of each lender, as they may differ.

Due to stringent requirements, qualifying for a conventional loan can be more difficult than qualifying for a government-backed loan. Some other loan types, such as FHA loans, may permit lower credit scores or higher debt-to-income ratios.

While conventional loans comprise most of the mortgage market, applicants must consider their unique circumstances and requirements when selecting a loan product. 

• FHA Mortgage

A home loan insured by the Federal Housing Administration (FHA) is known as an FHA loan. These loans are popular with first-time homebuyers and those with imperfect credit or limited down payment funds. The FHA does not make loans directly; instead, it insures loans made by private lenders, thereby reducing their risk and making it easier for borrowers to qualify.

The following are the general qualification criteria for FHA loans:

• Credit Score

A credit score of at least 580 is usually required to qualify for the 3.5% down payment advantage. On the other hand, those with credit scores between 500 and 579 may still be eligible with a 10% down payment.

• Employment

FHA loans require the borrower to demonstrate a consistent employment history or to have worked for the same employer for the past two years.

• Debt-to-Income Ratio

Two crucial debt-to-income ratios must be considered. The front-end ratio is the mortgage payment expense to effective income ratio, typically restricted at 31%. The second factor is the back-end ratio, which is the total fixed payment to effective income ratio typically limited to 43%. These ratios can be exceeded with compensating factors.

• Property Requirements

The home must be the borrower’s primary residence and fulfill specific FHA safety, soundness, and security criteria.

• Loan Limits

The FHA loan limits in Alabama are $472,030 for a one-unit property, $604,400 for a duplex, $730,525 for a triplex, and $907,900 for a fourplex, respectively.

• USDA Mortgage

USDA home loans, also known as the USDA Rural Development Guaranteed Housing Loan Program, are mortgages for low-to-moderate-income families residing in rural areas within the United States, including Alabama. The United States Department of Agriculture makes these loans available to boost the economy and quality of life in rural and suburban communities.

Alabama USDA home loan qualification requirements include the following:

• Citizenship or Residency

Applicants must be U.S. citizens or lawfully admitted resident aliens.

• Credit Score

Applicants must have a credit score of 640 and above.

• Stable Income

Applicants must demonstrate a stable and dependable income.

• Adjusted Household Income

A household’s adjusted income must be equal to or less than 115% of the area’s median income. In most locations of Alabama, the annual income limit for a family of four is less than $85,000.

• Debt-to-Income Ratio

The USDA prefers that the housing payment not exceed 30% of the borrower’s gross monthly income.

• Property Location

The property must be located in a USDA-designated eligible rural area. Outside of significant metropolitan footprints, the majority of Alabama is eligible.

Remember that these are basic guidelines, and some of them may differ depending on specific circumstances. For further information, contact the Rural Development office servicing the county where the house is located, or call our USDA loan specialists.

• VA Mortgage

The Department of Veterans Affairs (VA) offers a unique mortgage program for active service military members, veterans, and qualifying surviving spouses. Its goal is to help these people become homeowners in favorable conditions.

The VA home loan program in Alabama has various advantages. The following are the most important of these advantages:

• No Down Payment

The VA loan program frequently does not require a down payment from qualified borrowers, which makes homeownership more accessible.

• Low Interest Rates

VA loans typically have lower interest rates than conventional mortgage loans, which reduces the total cost of the loan over the life of the loan.

• No Private Mortgage Insurance

Unlike conventional and FHA loans, VA loans do not require the borrower to pay PMI, a monthly insurance premium that protects the lender in case of a loan default.

• Up to 100% Financing

This is a significant advantage, especially for purchasers who may need more substantial sums of cash for a down payment and closing costs.

To be eligible for a VA loan, you must meet the following criteria:

• Service Requirement

You must have served at least 90 days of continuous active service during wartime or 181 days of active service during peacetime.

• Certificate of Eligibility (COE)

You must obtain a COE to demonstrate to your lender that you are qualified based on your service experience and duty status.

• Credit and Income

You must have good credit, enough income, and meet your lender’s credit and income requirements.

• Personal Occupancy

The home must be used as your primary residence and personal occupancy.

• Jumbo Mortgage

Jumbo Mortgage is a home loan used to finance Alabama properties that are too expensive to qualify for a conforming loan. The term ‘jumbo’ refers to loan amounts that exceed the Federal Housing Finance Agency’s conforming loan limits. In 2023, most Alabama counties’ maximum conforming loan amount is $726,200. Therefore, any loan exceeding this limit would be categorized as a jumbo mortgage.

Here are some of the typical criteria that applicants must satisfy to qualify for a jumbo loan:

• Credit Score

Generally, borrowers need a higher credit score. Although the exact requirement may vary by lender, a credit score of 700 or higher is typically necessary.

• Down Payment

Contrary to popular belief, jumbo loans only sometimes require a 20% down payment. Certain lenders may offer jumbo loans with as little as a 10% down payment.

• Debt-to-Income

This is an additional essential consideration for jumbo loans. In general, lenders seek a debt-to-income ratio of 45% or less.

• Reserves

The cash reserve requirement for a jumbo loan is the amount of cash or other assets a borrower must have after the loan closes. The borrower maintains these reserves as an emergency fund to mitigate the risk of default. Since jumbo loans involve more significant amounts of money than conforming loans, they are viewed as riskier by the lender, resulting in stricter reserve requirements.

The reserve requirements may vary based on the lender’s policy and the loan’s specific characteristics, such as the loan’s size, the borrower’s credit score, and other financial factors. Six to twelve months is the typical reserve requirement for a jumbo loan.

Apply for a Home Loan in Alabama

Working with Capital Home Mortgage offers several benefits to Alabama homebuyers. We offer competitive rates and simple eligibility requirements. Capital Home Mortgage can assist in securing a mortgage and provide expert advice on maximizing loan programs. Prospective homebuyers can better understand Alabama’s mortgage options, which can influence their purchasing decisions.

Call (205) 352-1030 to speak with one of our Alabama Home Loan Specialists. We are here to help!