Alabama Mortgage & Refinancing

Last Updated on May 28, 2017 by Andrew Lee

With its warm, year-round climate and natural beauty, there is no wonder why Alabama continues to attract home buyers and property investors. The low cost of living plus the high employment rate of $94.1%, also add to its charm. Those shopping around for a home will find the state boasting quite the number of great cities to live in, with three of the best including Athens, Prattville, and Florence. 68.7% of all homes are owned, with the median home price sitting at $125,500 (Source:

Affordability of Homes

The Yellowhammer State remains one of the states in the country with affordable home loan rates. Here, the single-family home values average at only $125,500, in comparison with the national average of $217,600 (Source: National Association of Realtors). 93.40% of all homes in the state fall under this type of residential property building.

Condominiums and planned unit development (PUD) homes each take up 2.60% of the housing market, while townhomes comprise the remaining 1.30%.

Conforming Loan Standards

All counties in AL follow the standard when it comes to the conforming loan limit of $417,000. This once again backs up the affordability of mortgages in the state. As for the standard FHA limit, it sits at $271,050.

Note that Alabama is a “caveat emptor” (buyer beware) state, which means that home buyers shoulder most of the responsibility in discovering defects and other problems with the property before making the purchase.

Most Common Types of Mortgages

Fixed-rate mortgages and adjustable-rate mortgages (ARMs) remain the most commonly-sought after types of home loans  in the state. And while shoppers may also find jumbo loans, only a few lenders offer them.

  • Fixed-Rate Mortgages: Buyers who plan to stay in the home they will purchase often opt for this type of mortgage. Most of them also favor the 30-year fixed-rate mortgage, which comes with lower monthly payments. In the state, the rate for a 30-year fixed-rate mortgage averages at 4.25%.
  • Adjustable-Rate Mortgage: In most cases, ARMs have interest rates lower than those for the fixed-rate ones, averaging at 2.75%. Lenders offer this as a form of “introductory” deal, which a borrower can enjoy for a pre-specified amount of time. In most cases, the lower rates can last anywhere from 1 to 10 years. After this, the company can make “adjustments” to the interest rate, which generally mean increases.
  • Jumbo Loans: Since homes in the state typically fall on the more affordable end, consumers won’t find a lot of lenders offering jumbo loans. This type of mortgage go beyond the standard loan limit implemented in all counties, with rates averaging at 4%.

Refinancing 101

Existing mortgage holders can opt for refinancing to trim their home loan expenditures. This process comes in two different types: rate-and-term and cash-out refinancing. With the former, a borrower refinances the outstanding balance to reduce the interest rate at a more affordable term. Going for the second type means obtaining a new mortgage with an amount exceeding the remaining balance of the first loan, and then receiving the difference in the form of cash or using it to pay off other financial responsibilities.

Other Helpful Mortgage Resources

Alabama home buyers can also seek the advice and guidance of the following organizations:

  • Alabama Housing Finance Authority
  • Hardest Hit Alabama
  • United States Department of Agriculture Rural Development – Single Family Loans
  • Home Affordable Refinance Program

Comparing Rates: A Must-Do for All Buyers

Comparing mortgage rates is key to finding an offer that best suits a consumer’s budget. This is particularly true for first-time home buyers, who haven’t experienced the complicated process behind taking out a home loan.

It is only through comparison that shoppers can determine which offers come with rates they can afford. Mortgage calculators and comparison tools, which are widely available online, can also prove extremely helpful during the search, as they can help buyers establish loan-related costs and whether or not they can afford it.


Alabama Housing Finance Authority:

Hardest Hit Alabama:

USDA Rural Development:

Home Affordable Refinance Program: