Alabama Mortgage Rates

Living in Alabama

Alabama is in the heart of the American South and has a rich and complex history. The state was the site of several important events in America’s civil rights movement, including the Montgomery bus boycott and the march from Selma to Montgomery led by Martin Luther King Jr. Alabama includes parts of both the Appalachian Mountains in the northeast and the Gulf Coast at the southernmost edge of the state.

Housing in Alabama is more affordable than in many other parts of the country. According to the Alabama Center for Real Estate, a family making the state’s median income of $60,200 in the first quarter of 2019 had nearly twice the required income to qualify for a loan for a $159,423 home, which was the statewide median price at that time, assuming a 20% down payment. Home prices in Alabama are falling —the median sales price dropped to $159,423 in the first quarter of 2019 from $159,914 the previous quarter —and interest rates fell to 4.37% from 4.78%. In addition, incomes rose during this period, helping to make Alabama an affordable place to live for many.

In January 2019, homes in Birmingham, the state’s largest city, were on the market for an average of 53 days before being scooped up, much faster than the state’s average of 106 days. For comparison, the national average was 87 days in January 2019, according to Realtor.com. (These numbers include the typical 30-day closing window.) Homes in the northern city of Huntsville went even faster, at an average of 49 days. Alabama’s inventory of homes listed for sale has been tight and is trending downward, according to the Alabama Center for Real Estate. In 2018, there were 23,600 listings, a 42.8% decline from the state’s inventory peak in 2008.

The rules and costs of buying a home in Alabama

Before you make the life-changing decision to purchase a home in Alabama, it’s a good idea to get familiar with the rules for homebuyers and sellers in the state.

Home seller and buyer laws

Real estate property disclosure forms: Alabama is a caveat emptor state, which means “buyer beware” — the state puts the impetus on the buyer to fully inspect the property and limits sellers’ duties to disclose defects in the home. There are three exceptions to this, however: if a defect causes a direct threat to health or safety; if there’s a fiduciary relationship (such as adviser or counselor) between the parties; and if a buyer asks the seller a question regarding specific defects.

Judicial or non-judicial foreclosure state: In Alabama, a foreclosure can be initiated by both judicial and non-judicial means, depending on whether a “power of sale” clause — in which a buyer pre-authorizes a sale of the property if they default on their loan — exists in the mortgage agreement. If a “power of sale” clause exists, a non-judicial foreclosure can be implemented after running a notice of sale in a local paper once a week for four weeks. Thirty days must pass after the final notice of sale runs before the sale can take place. If there’s no such clause, the lender may file a lawsuit to foreclose or sell to the highest bidder after filing four notices of sale in consecutive weeks.

Community property state or equitable distribution: Alabama is an “equitable distribution” state, meaning that, upon divorce, property is split based on a number of factors, including earning power of the spouses, duration of the marriage and reasons for the split. These factors will affect how assets, including the home where the married couple resided, are divided.

Attorney vs. escrow state: In Alabama, a lawyer must represent the buyer, prepare all legal mortgage documents and assist with clearing title work.

Taxes

Real estate transfer taxes: In Alabama, the state imposes a transfer tax at the rate of 0.1% on deeds (50 cents on each $500) and 0.15% on mortgages (15 cents on each $100). The buyer is typically responsible for this tax.

Property tax exemptions: If you are over 65 years old or permanent and totally disabled or blind (regardless of age), you are exempt from Alabama state property tax, although county taxes may still be due. Homestead exemptions of up to $4,000 are allowed for those under 65 with no disabilities. Properties must be single-family, primary residences to qualify for homestead exemptions.

Typical property taxes: Alabama has the second-lowest median property tax rate in the country — homeowners occupying a house worth the state’s median value of $119,600 pay $398 each year in property taxes, according to Tax-Rates.org. Alabama counties collect 0.33% of a property’s assessed value in property taxes, on average. Shelby County, in the Birmingham metropolitan area, collects the most property tax, an average of $905 annually.

Conforming loan limits

The conforming loan limit, which is the maximum loan amount set for government-sponsored enterprises Fannie Mae and Freddie Mac to acquire a mortgage, is $484,350 for every county in Alabama in 2019. Each year, the Federal Housing Finance Agency (FHFA) sets the conforming loan limits.

Programs for homebuyers in Alabama

There are mortgage resources available in the state through the Alabama Housing Finance Authority.

Step Up Program

What it offers: The Step Up program targets moderate-income homebuyers in Alabama, offering a second mortgage of up to 3% of the original loan amount to cover down payment and closing costs. The homeowner is responsible for a single mortgage payment each month.

Who qualifies: Homebuyers in Alabama making less than $97,300 with a credit score of at least 620 and a debt-to-income (DTI) ratio of 45% or less.

Learn more here.

Affordable Income Subsidy grant

What it offers: In addition to the Step Up program, borrowers with incomes at or below 50% of the area median income limits (as published by Freddie Mac) are eligible for a $2,500 Affordable Income Subsidy grant. Borrowers with income between 50.01% and 80% of the income limits are eligible for a $1,500 grant.

Who qualifies: Buyers with a credit score of at least 620 and a DTI ratio of 45% or less who meet income guidelines.

Learn more here.

Mortgage credit certificate

What it offers: An MCC reduces the amount of property tax owed each year by homeowners at the following levels: 20% for loans of $150,001 or greater with no cap; 30% for loans of $100,001 to 150,000, up to $2,000 a year; 50% for loans of $100,000 or less, up to $2,000 year.

Who qualifies: Homebuyers with conventional, fixed-rate, FHA, VA, USDA Rural Development and privately insured mortgages who meet income and purchase price limits. Applications are accepted on a first-come, first-served basis by participating lenders.

Learn more here.

Rate shopping tips

Contact at least three lenders on the same day.

Mortgage interest rates change constantly because they are affected by the prices of bonds and mortgage-backed securities, which can be volatile. This means a quote from a lender on one day can’t reliably be compared to one from another lender on a different day. For this reason, it’s important to get all home loan quotes as close as you can to one another.

Give and get the same information from each lender.

When comparing mortgage programs, consumers should get the same information from each lender, including interest rate, duration of interest rate, whether or not it is adjustable, loan term, lender fees and third-party charges.

Add up all the lender fees to confirm the costs.

Closing costs can vary greatly from lender to lender, meaning that buyers who do their research can potentially save a good amount of money. Make sure you get a full picture of the fees, including appraisal fees, loan origination fees, title service and attorney fees.

Know when to lock in the rate.

To avoid an unexpected fluctuation in your mortgage rate between when you get approved from your loan and when you close, take advantage of a mortgage rate lock, and lock in the interest rate on your loan for an agreed-upon amount of time. This protects you from increases to your rate due to market fluctuations.

The information in this article is accurate as of the date of publishing.