What is an Alabama FHA Loan?

An Alabama FHA loan is a government-sponsored home loan within the state of Alabama. These loans are insured through either the Federal Housing Administration (FHA) or the Department of Housing and urban development (HUD). Government insurance means that if the borrower fails to pay off the loan, the government will reimburse the lender to assist them to lessen their losses. When a loan is insured, it has a lower risk to the lender, so the lender is capable of offering lower prices and lower credit score requirements. A primary advantage of FHA loans is that they have quite small down payment requirements, either 3.5% or 10% relying on your credit score. Additionally, particular among mortgages, the down payment for an FHA loan can be paid for by a member of the family as a present, or by using a government grant. The decreased minimum credit score rating and reduced down payment make FHA loans ideal for borrowers searching to buy their first house, as they are less probably to have a long credit history, and do not have the sale of a previous house to use on the down payment of a new one. In Alabama, FHA loans vary among lenders but have a maximum size based on the county and the kind of housing the loan is being used for. Below, we at Online Loans have broken down the assorted information available throughout the internet into a convenient need-to-know to make getting your FHA loan as easy as possible. For a better idea of whether an FHA loan is your best option, you can calculate the costs using our mortgage calculator.

Requirements

FHA loans can be used for both purchasing and repairing a primary residence. However, they can only to be used on a primary residence; if you plan to buy a second home or a house which you plan to rent out to others an FHA loan is most likely not right for you. You also must be a legal US resident and have had at least two years of stable employment. Your credit score plays a role in the types of FHA loans you qualify for. If you have a credit score of 580 or better, than you could be eligible for an FHA loan with a 3.5% down payment. However, if your credit score is worse than 580 you may be able to get an FHA loan with a 10% down payment (you may want to see our credit rebuilding guide). Loans are rarely granted to applicants with credit scores lower than 500, although there are some exceptions. Unlike many conventional loans, the down payment can be paid by another party as a gift, or as part of a grant. To qualify your mortgage payment expense to income ratio must be below 31%. This means that the monthly payments on your FHA loan must be less than 31% of your average monthly income. Also necessary is a total fixed payment to income ratio of less than 43%. This means that all of your monthly debt payments (your mortgage plus other outstanding debt like a car loan or student loan) cannot add up to more than 43% of your average monthly income. The maximum size of the loan is determined by the type of housing and the typical price of a home in the particular county. For Alabama the maximum ranges from $294,515 for a one unit home in a less expensive county to $636,900 for a four-unit house in a more expensive county.

Rates (%)

Since the government insures FHA loans, these loans tend to have lower interest rates than conventional loans with similar credit requirements. However, these lower interests rates are balanced a bit by the need to pay for additional insurance, which costs between 0.45% and 0.85% annually. The rates vary between lenders and circumstances. Lenders who pay for the closing costs of the loan tend to charge higher rates than those who do not pay for those costs. Shorter term loans also typically have higher rates. The normal range of APRs of FHA loans from lenders in Alabama is between 4.2% and 4.8%.

Maximum ($) Limits – By County

Below you will find a comprehensive table displaying the maximum FHA loan limits by county, organized by housing type. Download Formats: Excel (.xslx) & CSV
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