Home Purchase Loans In Birmingham Alabama

Birmingham’s real estate market is competitive. Birmingham homes receive three offers on average and sell in about 48 days. Birmingham’s median house sale price is up 8.9% from the previous year.

Purchase Loan Programs in Birmingham

Birmingham home buyers have various mortgage programs to choose from. The most common among them are the following:

• Conventional Loans

In Birmingham, Alabama, a conventional mortgage is one that the federal government does not insure. The potential for reduced interest rates and smaller down payments are typical features. Typical eligibility requirements include a minimum credit score of 620, a stable income, and a minimum 5% down payment. Highly qualified borrowers may get by with a 3% down payment. A debt-to-income ratio of 43 percent is generally accepted, although specific limits can vary by lender.

Conforming and non-conforming loans are two types of conventional loans. Conforming loans adhere to Fannie Mae and Freddie Mac requirements, including capped loan limits. The conforming loan maximum for a single-family house in 2023 is $726,200, $929,850 for a duplex, $1,123,900 for a triplex, and $1,396,800 for a quadplex. Non-conforming loans do not follow these rules and, as a result, are not eligible for purchase by Fannie Mae or Freddie Mac. Due to the extra risk involved, such loans frequently cater to higher-priced homes that exceed the conforming limitations, may require more significant down payments, and have less favorable terms.

Consequently, while conventional conforming loans typically feature lower interest rates and more stringent guidelines, non-conforming loans offer greater flexibility, albeit at the expense of higher interest rates and larger down payments. Your choice depends on your financial situation, the property, and long-term objectives.

• FHA Loans

A Federal Housing Administration (FHA) home loan is a mortgage insured by the FHA and issued by an FHA-approved lender. FHA loans are designed for low-to-moderate-income applicants who need help to make a sizeable down payment. In Birmingham, Alabama, the maximum loan amount for a single-family home is $472,030; for a duplex, it is $604,400; for a triplex, it is $730,525; and for a quadplex, it is $907,900.

FHA home loans feature a low down payment, flexible credit score requirements, and the ability to use gift funds for the down payment. In Alabama, you’ll need a 3.5% down payment and a minimum credit score of 580 to qualify for an FHA loan. If you have a credit score between 500 and 579, you may still be eligible for an FHA loan, but you must make a 10% down payment.

Other eligibility requirements for an FHA loan in Alabama exist besides the down payment and credit score requirements. You must have a consistent employment history and documented income. There is also a maximum debt-to-income ratio of 43 percent, with exceptions of up to 56 percent with compensating factors. Furthermore, FHA-financed homes must meet safety, security, and soundness standards.

• USDA Loans

A USDA home loan is a mortgage program provided by the US Department of Agriculture (USDA) to assist low-to-moderate-income individuals or households in purchasing homes in suitable rural areas. USDA home loans are classified into two types: USDA-Guaranteed and USDA-Direct. The USDA-Guaranteed home loan is made available by a private lender and guaranteed by the USDA, whereas the USDA-Direct home loan is made available directly by the USDA.

No down payment is required for a USDA mortgage, and gift funds can be used to cover closing costs. To qualify for a USDA loan in Alabama, your monthly housing costs (principal and interest on your mortgage, property taxes, and homeowner’s insurance) must not exceed a specified percentage of your total monthly income (29% ratio). Your credit history will be considered objectively. To be eligible for USDA financing, the residence must be located in an approved rural area.

The primary distinction between a USDA-Guaranteed and a USDA-Direct home loan is the income limitations. Your income cannot exceed 115% of the median household income in your area for Guaranteed Loans. You must have an adjusted income at or below the applicable low-income limit for the area you are purchasing to qualify for a Direct Loan.

• VA Loans

A VA home loan is a mortgage option for qualified veterans, active-duty service members, and select surviving spouses in Birmingham, Alabama. These loans are made by private lenders but are guaranteed by the United States Department of Veterans Affairs, allowing for favorable terms such as no down payment and no private mortgage insurance (PMI). With its substantial military presence, Birmingham is a prominent location where VA home loans are widely available, with competitive interest rates and liberal credit standards. 

The key qualifying requirements include meeting service criteria, such as having more than 90 active-duty days if you are a current service member or various requirements for veterans based on their service time. A Certificate of Eligibility (COE) is required and can be obtained online, through a lender, or by mail.

VA home loans feature no down payment for most applicants, low interest rates, limited closing costs, and no PMI. In the event of default, the VA guarantees a portion of the loan, typically up to 25 percent. In general, loan limits are attached to county limits, but they can vary based on remaining entitlements. Sometimes, borrowers can obtain multiple VA loans for primary residences, and prepayment is permitted without penalty. 

• Construction Loans

A Birmingham, Alabama, construction home loan provides funding while you are building your home. You receive funds to begin your construction and again when significant stages, such as laying the foundations or putting up the roof, are completed. Simply submit your invoice to the lender, and they will directly pay your contractors! Construction loans have several advantages, including reasonable fixed rates, generous loan periods, up to 80% funding, and no maximum loan amount.

A one-time close construction loan is distinct from a traditional construction home loan in combining the construction loan and the permanent mortgage into a single loan. This means you only have to go through the application and closing process once, saving time and money. A conventional construction home loan requires you to apply for a separate mortgage after the construction is completed.

• Jumbo Loans

A jumbo home loan in Birmingham, Alabama, is a mortgage that exceeds the standard conventional loan limit of $726,200 for 1-unit properties in 2023. These loans are widely utilized to finance luxury properties and have grown in popularity throughout Alabama, including Birmingham. Jumbo loans frequently include fixed-rate durations such as 30-year and 15-year and adjustable-rate alternatives. Financing of up to $1,500,000 is offered at 95% with no PMI (Private Mortgage Insurance).

Larger down payment options, which used to be generally about 20% but have since been changed to allow 10% and even 5% in some situations, are vital aspects of a jumbo loan in Birmingham. Furthermore, these loans can be used for both regular acquisitions and rate-term refinancing. However, cash-out refinancing is usually limited to a loan-to-value ratio of 80%-90%. Depending on the lender and the borrower’s criteria, loan amounts range from $2-3 million.

A minimum credit score of 700 is usually required to qualify for a jumbo loan in Birmingham. Other restrictions include detailed documentation for income and asset verification, and after closing, applicants must show mortgage payment “reserves,” typically equivalent to three months’ worth of payments. A lower debt-to-income (DTI) ratio is also advantageous for candidates for jumbo loans. Some programs even need a second appraisal to guarantee that the loan amount matches the property’s value.

• Non-Qualified Mortgage Loans

A non-qualified mortgage loan, also known as a non-QM loan, is a form of mortgage loan that does not meet the government-sponsored enterprise (GSE) requirements for a qualified mortgage. Borrowers who fail to meet the tight standards of a qualifying mortgage, such as those with irregular income or a high debt-to-income ratio, are perfect candidates for this sort of loan. 

Non-QM loans have their own set of requirements, such as flexible income and credit standards. Borrowers may be required to make a larger down payment and pay a higher interest rate in return. Non-QM loans have different income documentation requirements, no waiting period after bankruptcy, more significant debt limits, higher down payment requirements, and higher interest rates.

It’s worth noting that while non-QM loans are easier to qualify for than traditional mortgages, they’re also more expensive. 

Apply for a Birmingham Home Purchase Loan

Capital Home Mortgage provides a variety of financing choices customized to different needs for Birmingham, Alabama, home purchasers. We are a direct lender; thus, the approval process is quick and easy. We provide reasonable rates and an efficient process, especially appealing to people with lower credit scores because of government-backed programs such as FHA, USDA, VA, and HUD 184.

Call (205) 352-1030 to speak with our Birmingham Home Loan Specialists.