Buying a house in Alabama is an exciting milestone, but the process can take some time. Several factors, like your financial situation, market conditions, and the local economy can affect both how long it takes you to find a home and how much it costs you.
For example, homes in Huntsville are hitting the market at $402,400 and selling within 22 days — 18 days faster than the state average! — so you'll need to move quickly if you want to beat out the competition.
However, homes typically stay on the market longer in Selma, so you'll be able to take your time and potentially find a better deal.
The more you know about the steps to buying a house and Alabama's current real estate trends, the more prepared you'll be to navigate this complicated process as quickly and smoothly as possible.
No matter where you are in your home buying journey, Clever's concierge team can connect you with local real estate pros who will help you purchase your Alabama dream home!
The best part? When you buy with a Clever real estate agent, you could earn a cash-back refund worth up to 0.5% of the home price. On a qualifying $300,000 purchase, you'd get $1,500. That's real money back in your pocket!
Step 1: Save for a down payment
Your down payment is the initial portion 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 $40,597 for a $202,984 home — the typical home value in Alabama.
However, you have options to lower your down payment amount.
Government backed loans, like VA and FHA loans, allow you to contribute 0% and 3.5% of your home's purchase price respectively. Even conventional loans allow for down payments as low as 3-5% (though the minimum varies by lender).
Minimum Down Payment (%)
Down Payment ($)
Based on typical home values from Zillow (May 2022)
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.
Based on a $202,984 home, the typical home value in Alabama (Zillow, May 2022) with a 5.47% interest rate for a 30-year 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: Get pre-approved for a mortgage
A mortgage pre-approval 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 pre-approval before showing you their home.
You don't have to decide on one lender right now. In fact, you should compare interest rates and pre-approval amounts from several lenders to make sure you're getting the absolute best terms when you buy your Alabama home.
Get Pre-approved Today!
Get matched with a lender who can tell you how much house you can afford. To get started, where do you plan on buying?
To get a pre-approved for a mortgage, you'll fill out a mortgage application and provide details about your financial situation. They'll look at the following information to determine your mortgage pre-approval amount:
Lenders need to know that you earn enough to make your mortgage payments each month. Most lenders want your monthly housing costs to be less than 28% of your monthly income.
Lenders also consider your other debts, including credit cards, student loans, auto loans, and personal loans. They use this information to calculate your debt to income ratio (DTI) — or your total debt (including future mortgage) divided by your total income.
While some lenders will approve mortgages for buyers with DTI as high as 43%, it's best to keep your DTI under 36%.
Because of this, you might consider paying off some of your other debts before applying for a mortgage in Alabama.
Mortgage lenders in Alabama want to see that you have enough cash in the bank to cover your down payment and closing costs without completely draining your cash reserves.
While this requirement varies by lender, most want you to keep at least enough to cover two mortgage payments including insurance and taxes.
Step 3: Choose the right location
A house's neighborhood can be just as important as its layout and features. In general, you should consider the following factors when deciding which neighborhood is best for you:
What's your home buying budget?
Once you know your budget (a pre-approval letter will tell you the most you can expect to borrow), you can narrow your search to neighborhoods where homes are selling within your price range.
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. You want to choose a neighborhood that's in your budget, but could also lead to a big return when you decide to sell.
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
Once you have a list of neighborhoods with homes in your budget, you should evaluate how well each one meets your personal needs and preferences. To finalize your list of target areas, consider factors like:
- School districts
- Your daily commute
- Crime rates
- Restaurants and amenities
- Transportation options
Step 4: Find a great real estate agent in Alabama
Your real estate agent will be your main ally during the home buying process. Besides finding and showing you properties, your agent should be an expert on buying a home in Alabama.
They'll 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
Ask each of them questions about your target neighborhoods, how they prefer to communicate, and their strategy for helping you find and close on your new home. You should feel comfortable with the agent's knowledge, experience, and process before committing to an agent.
Top Local Agents Hand-Picked for You!
Clever matches you with multiple agents in your area so you can interview, compare, and choose the best one to help you buy your next home.
Step 5: Start house hunting in Alabama
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.
Prioritize your needs vs. wants when buying a home in Alabama
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, May 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, November gives you the fewest choices in Alabama. Historically, there are 25.9%) fewer homes for sale than during Alabama's peak season.
Housing inventory in Alabama by season
New Listings per Month
Based on May 2022 data from Realtor.com
Step 6: Make an offer
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. 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
Based on May 2022 data from Realtor.com
What should your offer include?
Your real estate agent can help you decide which of these common options you should include in your offer:
- Seller concessions: You'll have to pay for most of your closing costs out of pocket when you buy a home, but you may be able to ask the seller to cover some of those costs for you. This option may allow you to offer a higher purchase price and essentially include your closing costs in your mortgage.
- Repair credits: If the home is in need of repair, you could ask for credits instead of having the seller make and pay for the repairs. The seller avoids the hassle of waiting for contractors to complete the job, and you get to oversee the repairs in the future to make sure they meet your expectations.
- Inspection contingencies: Most purchase agreements have inspection contingencies that allow you to change your offer (or back out all together) if the inspection turns up major problems. If you have a high degree of certainty about the house's condition (like if the seller can show you a recent inspection report), you can forgo this contingency to give the seller a higher sense of confidence.
- Letter to the seller: Many sellers have a personal attachment to the home. They've lived there for years and want to know the next owner will take care of the property. Writing a letter to the seller can show them how you picture your life in the house and appeal to their sentimental side.
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.
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!
Once you finish your inspections and your lender approves your financing, you'll be ready for closing! Closing is the process of finalizing your mortgage and transferring ownership of the property.
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 $203,000 home — the typical home value in Alabama — that's between $6,090 and $10,150!
Frequently asked questions
- 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
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.