Compare Current Mortgage Rates in Alabama

If you’re shopping for a home in Alabama, understanding interest rates can help you pay less over the life of your mortgage. Saving even one percentage point on your interest rate can mean paying thousands less in interest over time.

Learn how to find the best mortgage rates in Alabama. 

Mortgage lenders in Alabama use many factors when deciding how to set their rates: 

• Credit score: You’re more likely to get a lower mortgage interest rate if you have good credit. Lenders save their best interest rates for borrowers with excellent credit.
• Home value and location: The value and location of the home affect the interest rate.
• Loan amount and home value: Larger loans, such as jumbo loans, may carry a higher interest rate than mortgages for a smaller amount.
• Down payment: The amount of your down payment may help lower your interest rate, especially if you can put down at least 20%. 
• Type of loan: Each loan type has its own rates, benefits, and features. 
• Loan program: If you participate in a loan program backed by the state or federal government, you may be eligible for a lower interest rate. 
• Buyer demand: If demand is high, interest rates may be higher as well. If demand is low, interest rates may also be low to entice more borrowers.
• Lender: Rates can also vary by lender, with credit unions, mortgage lenders, and other institutions charging different rates.
• The Federal Reserve: The Federal Reserve, also known as the Fed, is the nation’s central bank. When the Fed raises or lowers its target federal funds rate, other institutions often raise or lower their rates as well.
• Economy: The economy also affects Alabama mortgage rates; when it’s doing well and people are spending more, rates tend to go up. When the economy is stagnant or shrinking, rates tend to drop.

Alabama has several state programs available to first-time homebuyers. The main program is called Step Up, and it's operated by the Alabama Housing Finance Authority (AHFA). If you’re eligible, you can use any of the three programs below:

• Step Up: This program offers a mortgage with a competitive rate and allows homebuyers to put less than 20% down on a home using one of three types of mortgages: a Housing Finance Authority (HFA) conventional mortgage, FHA mortgage, or Veterans Affairs (VA) mortgage. To qualify, you’ll need at least a 640 credit score and a debt-to-income ratio (DTI) of 45% or less. The income limit for this program is $159,200, and you’ll need to complete a homebuyer education program to qualify.
• Affordable Income Subsidy Grant: If you choose an HFA (Housing Finance Authority) mortgage, you may be eligible for a down payment grant of 0.5% or 1.0% of the loan amount. This helps cover the down payment and you don’t need to pay it back. To qualify for a 0.5% grant, your income must be at or below 80% of the area median income (AMI). To qualify for a 1.0% grant, your income must be at or below 50% of the AMI. (Freddie Mac, the government-sponsored mortgage company, publishes a list of AMIs for each county in Alabama.)
• Mortgage Credit Certificate (MCC): While it may not help you at the closing table, Alabama’s MCC can still save you money on a home by giving you a tax credit on the interest you paid. Qualified buyers can claim a credit of 20% for interest paid on a mortgage of more than $150,000.

Keep in mind that your home location and your income can affect your eligibility for different loan programs and products. For example, if you’re home shopping in Mobile, which is in Mobile County, Alabama, the median household income is $73,000, 80% of AMI is $58,400, and 50% of AMI is $36,500. But if you’re shopping in Birmingham, Alabama, which is in Jefferson County, you could still qualify with a higher income. The median income in Birmingham is $89,600, 80% of AMI is $71,680 and 50% of AMI is $44,800.

If you want to get the best Alabama mortgage rates, consider taking these steps:

• Improve your credit: Building your credit score is a great way to earn a lower mortgage rate. You can start by ensuring your payments are on time. If you have a lot of debt, work on paying it down; a lower credit utilization can also help improve your score.
• Decide on a budget: Staying within your budget, and making sure you can afford what you want to spend, is a good way to keep your mortgage rates low. You can get an idea of what you can afford with a mortgage calculator.
• Shop around for lenders: This is a great way to find a lower interest rate since different lenders may charge different rates for the same type of mortgage.
• Compare loans: Once you’ve found a few lenders that look promising, compare loans, including the loan type, interest rate type, annual percentage rate (APR), fees, and terms.
• Get pre-approved: Apply for a mortgage pre-approval to get a more accurate estimate of what you can expect to borrow. The lender will examine your financial situation and give you a letter that shows how much you could borrow if you apply for a mortgage. You can show sellers your mortgage pre-approval letter when you make a purchase offer.

Don’t forget to look beyond Alabama’s first-time homebuyer programs, too. 

“I think it's great to know if you qualify for the HFA program, but it’s also in your best interest to explore your other options,” said Josh Kaplan, a closing costs expert and CEO of Closing Cost Help. 

“There are a handful of different national programs that do not have income limits, require little to no money down, and can give you access to over $10,000 for your down payment and closing costs,” he said. “They also are more lenient on credit score and debt to income ratio in a lot of cases.” 

One example is the Specially Adapted Housing (SAH) Grant from the U.S. Department of Veterans Affairs, which provides substantial grants to U.S. veterans looking to buy or build a home. 

You have several mortgage options when buying a home in Alabama.

Conventional

• Non-government backed mortgage
• Usually a minimum 620 credit score
• Typically must put down at least 3%
• Private mortgage insurance (PMI) is generally required with down payments of less than 20%

FHA

• Backed by the Federal Housing Administration
• Credit score minimum as low as 580, or 500 if you put down 10% or more
• Down payment minimum as low as 3.5%
• Mortgage insurance is required

VA

• Backed by the U.S. Department of Veterans Affairs
• No minimum requirement from the VA (most lenders set their own minimums)
• Available with as little as 0% down
• No mortgage insurance is required but you may owe a loan funding fee of up to 3.3%

USDA

• Backed by the U.S. Department of Agriculture
• No minimum requirement
• Available with as little as 0% down
• No insurance required

Jumbo

• For loan amounts that exceed conventional mortgage limits (usually capped at $766,550, though varies by location)
• Usually, you’ll need a 680 or higher
• Typically you'll need to put at least 10% down
• PMI is usually required if you put down less than 20%