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Best Mortgage Lenders for Alabama First Time Home Buyers

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There’s nothing like Southern living. Alabama has deep historical roots and vibrant culture. Here are the ins and outs of what you should expect as an Alabama first time homebuyer. 

The Best Mortgage Lenders for First Time Home Buyers in Alabama:

The Housing Market in Alabama: An Overview

Before you start looking for a mortgage, it helps to know the Alabama housing market. 

Here’s a quick overview:

Total households: 1,856,695

Median list price: $189,900

3 most expensive cities in Alabama to buy a house:

  • Gulf Shores
  • Auburn
  • Tuscaloosa

3 most affordable cities in Alabama to buy a house:

  • Roanoke
  • Tuscumbia
  • Attalla

Preparing for a Mortgage

As a first time homebuyer, start by getting preapproved for a mortgage. This helps you know how much house you can afford. You should contact multiple lenders to get a purchase quote for preapproval so you know you’re getting the best rate. 

The next step is finding a real estate agent to help you find a home. Your agent should be someone knowledgeable about the local area and willing to work within your budget. 

Once you’ve found a home, your agent will help you put in an offer. If it’s accepted, put in a full application with your lender. You’ll need to provide financial documents, including:

  • W-2s from the past 2 years
  • Your tax returns from the past 2 years
  • Paystubs from the past month
  • Your 2 most recent bank statements
  • A copy of your driver’s license
  • Your Social Security number
  • Proof of any other income
  • Documentation of the source of your down payment

If you’re applying for a VA loan, you’ll also need to provide your certificate of eligibility. 

Next, your lender underwrites your application. During underwriting, the lender may order an appraisal. An appraisal is when a neutral party comes to your property and determines its value. You will need to pay for the appraisal if your lender requires one. Your lender may also ask for additional documents. Once your lender finishes underwriting you will know your approval status for your mortgage. 

Your credit score plays an important role in the process. Lenders use your credit score to determine whether you qualify for a mortgage and what interest rate to offer you. Lenders consider borrowers with a high credit score a lower risk, so lenders offer them lower rates. 

Here are the minimum credit scores required by several Alabama lenders:

LenderMinimum Credit Score Required
Better.com620
Caliber Home Loans620
Freedom Mortgage620
Homebridge Financial Services620
loanDepot620

Mortgage Options

As you consider the best mortgage companies for your Alabama home, you’ll also find a variety of mortgage options. Here are the most common types of mortgages:

  • Conventional: A conventional mortgage is a mortgage that isn’t backed by a government agency. This means that a conventional mortgage may be more difficult to get. You may need a higher credit score to qualify for a conventional mortgage than you would for an FHA mortgage, for example. 

Conventional mortgages come in 2 varieties: conforming and non-conforming. Fannie Mae and Freddie Mac back conforming loans. The government sets limits on these loans. Fannie Mae and Freddie Mac are private companies started by the government to stabilize the mortgage market. Nonconforming loans are conventional loans that don’t qualify to be insured by Freddie Mac and Fannie Mae. 

  • FHA: The Federal Housing Administration insures and sets the rules for FHA mortgages. Borrowers with a credit score of 580 or higher can make a down payment of 3.5%. Borrowers with a credit score of 500–579 can qualify with a down payment of 10% or more. An FHA mortgage may cost more overall than a conventional mortgage if you have good credit. 
  • USDA: The U.S. Department of Agriculture backs USDA mortgages. These programs are designed to help moderate- and low-income borrowers purchase homes in rural areas. These mortgages are available with low or no down payment. 
  • VA: The Department of Veterans Affairs guarantees VA mortgages. These mortgages are available to qualifying current and former service members. They have low or no down payment requirements and competitive interest rates. 
  • Jumbo: A jumbo mortgage is a nonconforming conventional mortgage that exceeds the limits set by Fannie Mae and Freddie Mac. Conforming loans are limited to $484,350 in most areas, but can go up to $726,525 in higher-priced housing markets. A jumbo mortgage is higher than these limits. 

Private lenders offer government-back mortgages. Each government agency approves its lenders. 

First Time Home Buyer Programs in Alabama

Buying your first Alabama home might seem intimidating. Alabama offers a few programs that might help. Here are Alabama’s first time homebuyer programs:

  • Step Up: The Step Up program helps homebuyers with an income of $97,300 or less buy a home. Although it’s not specifically for first time homebuyers, first time homebuyers do qualify. It offers a 30-year fixed-rate mortgage and a second mortgage to help with your down payment. Step Up offers up to 3% of the purchase price of your home in down payment assistance. 
  • Mortgage Credit Certificate program: The MCC program offers first time homebuyers a tax break. The MCC lowers your federal taxes by a percentage of the interest you pay on your mortgage. The credit ranges from 20% to 50% of your mortgage interest, depending on the size of your mortgage. You must meet income and purchase price limits to qualify. 
  • Affordable Income Subsidy grant: This program offers $2,500 to help with closing costs as a grant, which means you don’t need to repay it. To qualify, you need to meet income and credit score requirements and complete a homebuyer education class. 
  • First time homebuyer savings account: If you’re a first time homebuyer, you can open a tax-free savings account at any bank or credit union in Alabama. You can deduct your deposits and interest from your Alabama taxes. 

The Alabama Housing Finance Authority doesn’t offer loans directly. You can apply for these programs through approved lenders

Current Mortgage Rates in Alabama

Your mortgage rate is the amount of interest you pay on your mortgage. Alabama’s mortgage rates are close to the national average. Mortgage rates change daily. Lenders change rates due to changes in the economy and the housing market. At Benzinga, we update mortgage rates frequently to reflect the most relevant data. 

Here are the current rates in Alabama:

Loan Type Rate APR
30-year fixed 3.878% 4.003%
15-year fixed 3.4% 3.662%
7/1 ARM (adjustable rate) 3.25% 3.265%
5/1 ARM (adjustable rate) 4.025% 3.638%
Rates based on an average home price of $138,975 and a down payment of 20%.
See more mortgage rates on Zillow

Closing a Mortgage

Closing is the end of the mortgage application process. You may be able to choose the company that handles your closing. If you can, shop around for the company with the best rates and service. 

You can request your closing documents 3 days before your closing date. Request them in advance so you can review them before closing. Review your closing disclosure and make sure you understand the document. If there are any changes that you weren’t expecting, review them with your lender. 

You’ll also need to pay your down payment and closing costs at closing. Make sure you’re clear on the instructions. Confirm them with your closing company. At closing, you’ll sign all your closing documents. Take your time and sign when you’re comfortable. 

It takes time to close a mortgage. Here are the average closing times for several Alabama lenders:

LenderAverage Days to Close 
better.com21
Homebridge Financial Services30
loanDepot13
PennyMac10
Quicken Loans®30

5 Best Mortgage Lenders in Alabama for First Time Home Buyers

Choosing a lender is a big decision. Here are the best Alabama lenders for first time buyers:

1. Best Overall: Quicken Loans®

Quicken Loans® offers an online mortgage experience backed by award-winning customer service. Its online learning center offers a wealth of educational information.

If you’re curious about the numbers, you can use its mortgage calculators to get a sense of your monthly payments. Quicken Loans® offers conventional, jumbo and government-backed mortgages. 

2. Best for Low Credit Score: Caliber Home Loans

Caliber Home Loans offers excellent resources for first time buyers. It has branches throughout Alabama if you prefer an in-person experience.

If you have a low credit score, Caliber offers FHA mortgages and proprietary products to help you get into a home. Caliber also has products for the self-employed. 

3. Best for In-Person Service: Regions

As a first time buyer, you might prefer an in-person lender. Regions has branches throughout Alabama. It has specialized programs that offer funding to help with loan costs.

You work with a dedicated loan originator who knows your local market. It offers conventional, FHA and VA mortgages.

4. Best for an Online Experience: guaranteed Rate

guaranteed Rate offers a completely digital mortgage experience. It also has an excellent reputation for service. You can easily reach a loan officer by phone or email if you have questions.

If you prefer to work on the go, guaranteed Rate also has a mobile app. It offers conventional, FHA and VA mortgages. 

5. Best for Veterans: Veterans United

If you’ve logged some time in the military, Veterans United’s loans will likely be the best deal. Unlike other veteran-marketed loan programs, Veterans United only accepts active duty and veteran military members.

In addition to no-down-payment loans, you’ll also eliminate the private mortgage insurance you’ll have to pay with other mortgages.

Veterans United is also more forgiving of lower credit scores. Interest rates are lower than average.

Buying Your First Alabama Home

Buying your first home is exciting. Get quotes from at least 3 lenders to ensure you get the best rate. Down the road, you can always get a refinance quote to see if you qualify for a better rate. Take your time looking for the right home and the best loan.

Frequently Asked Questions

1) Q: How do I get pre-approved?

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1) Q: How do I get pre-approved?
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First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today! 

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2) Q: How much interest will I pay?

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2) Q: How much interest will I pay?
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Interest that you will pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here

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3) Q: How much should I save for a down payment?

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3) Q: How much should I save for a down payment?
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Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first time buyers. Check out the lenders that specialize in making the home buying experience a breeze. 

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