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Now that the housing market is finally calming down after the pandemic, buyers are facing a new challenge: Soaring mortgage rates.
In Alabama, the average 30-year fixed mortgage rate is 7.06% — up from 2021's historic lows. This raises the average monthly mortgage payment to $1,196 (assuming a 20% down payment at the median home value).
But buying a home in Alabama is still possible, even for first-time home buyers. Many markets are seeing frequent price drops and fewer offers, giving motivated buyers the upper hand in negotiating for the best price.
In this guide, you’ll learn how to buy a house in Alabama with confidence no matter what the market brings. Learn why you can trust our advice.
Whether you're actively house hunting or just starting to browse homes on Zillow, it's never too early to find a great local realtor to guide you on your search. An experienced agent can help you navigate a tricky housing market, explore your financial options, and negotiate the best deal possible.
Best of all, hiring a real estate agent comes at no extra cost to you — since the seller typically pays both their listing agent and your buyer's agent.
Ready to find a great local realtor, but not sure where to start? The best (and easiest!) option is to try a free agent matching service like Clever Real Estate. Answer a few simple questions about your home buying goals, and Clever will match you with hand-picked agents from Keller Williams, RE/MAX, and other top brokerages in your area. Find a top local agent and make your home buying dreams a reality today!
Step 1: Save for a down payment
🔑 Key takeaway:
Your down payment can be less than 20% of the purchase price — $44,689 for the typical home in Alabama — but you'll have to purchase mortgage insurance and pay more interest over the life of your loan.
Your down payment is the first part of your home's purchase price that you pay at closing. Your mortgage lender will pay the remaining balance.
Typically, mortgage lenders in Alabama want you to contribute 20% of the purchase price as a down payment. That would be $44,689 for a $223,447 home — the typical home value in Alabama.
However, you have options to lower your down payment amount.
Government backed loans, like VA and FHA loans, allow you to contribute 0% and 3.5% of your home's purchase price respectively. Even conventional loans allow for down payments as low as 3-5% (though the minimum varies by lender).
But making a down payment of less than 20% comes with some risks.
First, because you're borrowing more money, you'll have a higher monthly payment and pay more in interest over the life of your loan.
Second, you may have to purchase mortgage insurance.
Conventional loans require private mortgage insurance (PMI) until your loan balance reaches 80% of the purchase price. FHA loans, on the other hand, require a mortgage insurance premium (MIP) for the life of your loans.
Mortgage insurance costs around 1% of your mortgage balance annually. However, rates vary based on your down payment and credit score. Typically, your mortgage insurance payment is added to your mortgage payment each month.
VA loans don't charge mortgage insurance. Instead, you'll pay a VA loan funding fee at closing, which can range from 1.4% to 3.6% of the purchase price.
Alabama down payment assistance programs
Alabama's Step Up program provides down payment assistance for both FHA loans (3.5% of the sale price, up to $7,500) and conventional loans (3% of the purchase price up to $7,500).
You'll receive the down payment funds as a 10-year second mortgage that's combined with a 30-year, fixed-rate first mortgage to purchase the property.
To be eligible, the household income must be:
- 80% or less of the Area Median Income (AMI) for property location or at most $130,600 annually (whichever is lower) with a credit score of 640 or higher; or
- More than 80% of the Area Median Income (AMI) for property location, but less than $130,600 annually, with a credit score of 680 or higher.
Participants must also complete a home-buyer education course.
Homeownership Down Payment Assistance Program
Mobile, Alabama’s Homeownership Down Payment Assistance Program is available to first-time home-buyers purchasing a house in Mobile, Alabama.
You can receive up to $10,000 for down payment and eligible closing costs or up to $15,000 for a formerly blighted property.
You can use these funds to purchase a single-family home, condominium, modular home, or duplex within the Mobile city limits. For existing homes, the purchase price can't be more than $152,000, while new construction must be $243,000 or lower.
As of June 2021, to be eligible, your household income cannot exceed the following limits:
- For a 1-person household: $32,700
- For a 2-person household: $37,400
- For a 3-person household: $42,050
- For a 4-person household: $46,700
- For a 5-person household: $50,450
- For a 6-person household: $54,200
- For a 7-person household: $57,950
- For a 8-person household: $61,650
Participants must complete a pre-purchase homeowner counseling and education course.
Step 2: Find a great real estate agent in Alabama
🔑 Key takeaway:
Interview multiple agents to find one who knows your target neighborhoods, has experience in your price range, and communicates well.
Your real estate agent will be your main ally during the home buying process. Besides finding and showing you properties, your agent will help you make offers, negotiate contracts, and navigate the closing process. Plus, they can recommend other service providers like title companies and inspectors to help you buy your home in Alabama.
Don't rush into choosing an agent. Instead, take the time to research and interview multiple real estate agents who have experience in the neighborhoods you're interested in. You should pay attention to a realtor's:
- Years of experience
- Number of transactions in the last year (the more the better!)
- Experience in your price range
- Overall review score
- Individual reviews and complaints
Finding a great real estate agent shouldn't be complicated. Let Clever Real Estate do the hard part and match you with experienced local realtors who are experts in your market.
Enter your zip code below to compare top agents from trusted brands like Keller Williams, Berkshire Hathaway, and Coldwell Banker, then choose the best fit for you. It's 100% free, and there's no obligation.
Step 3: Get preapproved for a mortgage
🔑 Key takeaway:
Once you're preapproved for a mortgage, it's imperative that your financial situation doesn't change. If your credit drops, it can derail the process and keep you from closing on your house.
Here are some easy ways to ensure your credit doesn't change after you receive your preapproval letter:
- Avoid opening new credit accounts
- Don't close any accounts that have been open for a long time
- Make all of your credit card payments on time
» LEARN MORE: What factors do mortgage lenders consider?
A mortgage preapproval letter is an offer to lend you up to a certain amount of money to purchase a home. It shows sellers that you are a serious buyer who is financially qualified to make an offer on a home.
Most sellers in Alabama will require preapproval before showing you their home.
You don't have to decide on one lender right now. In fact, you should compare interest rates and preapproval amounts from several lenders to make sure you're getting the absolute best terms when you buy your Alabama home.
Step 4: Choose the right location
🔑 Key takeaway:
Search for neighborhoods where:
- Home prices are within your price range
- Home values are on the rise
- The local amenities support your lifestyle
Currently, the typical home value in Alabama is $223,447, but don't worry if that doesn't perfectly match your budget. Home prices vary dramatically from city to city and even from neighborhood to neighborhood!
Also, look at past home value trends. This will give you an idea of how much your home's value could go up over the next few years.
To give you an idea of how appreciation could impact what your house is worth in the future, consider these examples from three neighborhoods in Tuscaloosa:
Home value appreciation in Tuscaloosa
Step 5: Start house hunting in Alabama
🔑 Key takeaway:
The increasing inventory in Alabama over the past year may give you a modest selection, but it may not be the perfect house you’re envisioning for your budget, as listing prices continue to climb. Be open to your realtor’s suggestions — they can show you great properties for your budget — but you might have to lower your expectations and may not find a house that will tick all your boxes in this tightening market.
Searching for homes in Alabama is the fun part of the home buying process! You'll get to look at a variety of homes and discover what you really want in a home.
Make a list of everything you want in a home and prioritize them. At the top of the list should be the items that are most important to you. This will help you separate your "must-haves" from your "nice-to-haves."
Your agent can help you understand if your wants are realistic for your budget and favorite neighborhoods or if you need to rethink what you're looking for.
Look at current housing inventory
The timing of your house hunt in Alabama can have a big impact on your number of options. For example, in Alabama, #VALUE! has historically seen the most homes for sale. Searching in this season could give you more options and a greater likelihood of finding your dream home.
On the other hand, #VALUE! gives you the fewest choices in Alabama. Historically, there are #N/A fewer homes for sale than during Alabama's peak season.
Housing inventory in Alabama by season
Step 6: Make an offer
🔑 Key takeaway:
While homes in Alabama are sitting in the market for a bit longer than usual, don’t wait around, as the market is quite competitive at the moment. If you want a particular property, make a competitive offer, but don’t let the seller strong-arm you into an excessively high price. Consult with your real estate agent to find the best contingencies — or better yet, let them spearhead the negotiations for the best deal.
Once you find a Alabama house you love, it's time to make an offer. Your real estate agent will help you write a compelling offer that gives you the best shot of convincing the homeowner to sell to you.
Currently, in Alabama, homes stay on the market for 80 days before going under contract. However, every market goes through seasonal changes. During busier months, homes get snatched up more quickly than others.
Historically, Alabama homes sell fastest in July, where the average property is only on the market for 68 days. If your home search falls around this time, you should be prepared to move quickly and potentially make offers on several homes before yours is accepted.
On the other hand, if you buy in December, you have a bit more time to search. Homes typically stay on the market 18 days longer than Alabama's annual average.
Average time homes spend on market in Alabama
» LEARN MORE: What should an offer include?
Step 7: Inspections and appraisals
Inspections and appraisals are an opportunity for you to better evaluate the home's condition and value before officially purchasing it. You may have an opportunity after this step to renegotiate the terms of your contract with the seller if something unexpected pops up.
🔑 Key takeaway:
- Inspections: A licensed professional checks the house for any unseen, unexpected, or potential issues.
- Appraisals: An appraiser hired by your lender examines the house to determine how much it's worth.
Home inspections in Alabama
Having your Alabama home inspected by a licensed inspector gives you peace of mind about the condition of the property before you commit thousands of dollars to purchase it.
Your inspector should check out the following parts of the property:
- Electrical system
- HVAC system
If the home has a septic system, you should also pay for a septic inspection to make sure it doesn't have any problems that wouldn't be covered in a typical home inspection.
Besides a general inspection, Alabama also recommends buyers have the following inspections and testing done before closing on a home:
Radon Testing: While it's not required by law, Alabama strongly recommends that homes are tested for radon. If the seller hasn't had the house's radon levels tested recently, consider having it tested before closing on the home.
For a free radon testing kit, care of the Alabama Department of Public Health, simply fill out this request form here.
Termite Inspection: If you're applying for a VA loan, you'll most likely be required to have a termite and pest inspection. Also, as a “buyer beware” state, it's best to have a potential house inspected to make sure it's free of termites.
Appraisals determine the value of the property. If you're using a mortgage to buy your new home, your lender will order an appraisal to make sure the home is worth the money that it's loaning you.
Step 8: Close on your new home!
🔑 Key takeaway:
Before you close on your new home, you and your agent will do a final walkthrough of the property to ensure that it's still in the expected condition.
On closing day, you'll meet at the title company to finalize and complete the title transfer. Be prepared to sign several documents and make the required payments.
Carefully read and sign the paperwork needed to finalize your loan and the deed transfer. There will be a series of documents to review, including:
- The deed transfer
- The final loan application
- Mortgage notes
Next, you'll need to pay your closing costs. For buyers, these can usually be broken down into four separate categories:
- Lender fees: Expenses paid to your mortgage lender for originating and underwriting your loan. In some cases, you may pay for other costs associated with your loan, such as appraisal or survey fees.
- Prepaid costs: Ongoing costs of homeownership, such as property taxes and homeowners insurance.
- Title and escrow charges: Fees required to transfer ownership of the property. These charges cover the settlement fee of the title company and the costs of research and documentation for the transfer.
- Other closing costs: Additional expenses that vary by buyer. These costs can cover pest inspection fees, real estate attorney fees, natural disaster certification fees, or other services needed to purchase the home.
Buyers in Alabama typically pay 3–5% of the purchase price in closing costs. For a $223,400 home — the typical home value in Alabama — that's between $6,702 and $11,170!
Ready to make your home-buying dreams a reality? The first step is to find a top local realtor who's an expert negotiator with proven experience in your market.
Enter your zip code below to compare the best agents from trusted brands like Keller Williams, Berkshire Hathaway, and Coldwell Banker, then choose the best fit for you. It's 100% free and there's no obligation.
Frequently asked questions
Do I need a real estate attorney in Alabama?
In Alabama it's required for a real estate attorney to be part of every home sale. While your agent can make recommendations, remember you get to make the final decision. Interview lawyers before hiring them to make sure they have the experience you need.
What are the steps to buy a house in Alabama?
- Save for down payment
- Get pre-approved for a mortgage
- Choose your preferred Alabama neighborhoods
- Partner with the right real estate agent in Alabama
- Go house hunting
- Make a strong offer
- Inspections and appraisals
- Do a final walkthrough and close
Does Alabama have a first time home buyer program?
No, but Alabama's Step Up program can provide down payment assistance to first-time homebuyers. Eligible buyers can receive a 10-year second mortgage of up to 3.5% of the sales price or up to $7,500, depending on the type of loan. Participants must complete a homebuyer education class to qualify.
Participants in the Step Up program cannot exceed the maximum income limit of $130,600. Those who earn 80% or less than the AMI (area median income) are eligible for the Conventional Step Up program. Both options require a credit score of 640 or higher.
Those who earn more than the 80% AMI but less than $130,600 can apply for the Freddie Mac Advantage Loan Product. This program requires a minimum credit score of 680.
Why trust us?
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We’ve earned buyers’ trust with a rating of 4.9 out of 5 starts on Trustpilot and over 1,800 customer reviews.
Our team of industry-leading researchers are committed to making homeownership more accessible by educating buyers through guides like this one. We've spent thousands of hours analyzing publicly available data, surveying consumers, and interviewing industry experts. Our research has been featured in The New York Times, Business Insider, Inman, Housing Wire, and many more.