FHA Loans
Alabama
Alabama is home to natural beauty and outdoor recreation. Cities like Huntsville in Northern Alabama offer residents serene landscapes and welcoming communities. Mobile, Alabama, is an inclusive city with ample employment and business opportunities.
Birmingham is considered one of the most LGBTQ+-friendly cities in the state, receiving a perfect score in the Municipal Equality Index rating by the Human Rights Campaign. Similarly, Montgomery’s highly active LGBTQ+ community has been instrumental in protecting the rights of gay, lesbian, bisexual, and transgender Alabamans throughout the state.
Despite stereotypes, Alabama has a thriving BIPOC community, too; Montgomery is home to the Legacy Museum, which celebrates the history of the Civil Rights Movement that found its start here.
If buying an Alabama home is part of your plan for the future, you’re likely considering your financing options. An FHA loan in Alabama can help buyers achieve homeownership.
What Are FHA Loans?
FHA loans are mortgage loans backed by the Federal Housing Administration (FHA) and the United States Department of Housing and Urban Development (HUD). Because they are backed by the federal government, more private lenders are willing to issue more competitive loan terms and less strict eligibility requirements.
The FHA program has been instrumental in helping marginalized individuals achieve homeownership, especially if it’s their first home. In 2023, over 82% of borrowers had not owned a home in the last three years, and over 30% of loans were issued to people of color, which is much higher than the rate for other mortgage products. A previous study found that while Black borrowers were able to access conventional loans a little over 61% of the time, they could receive an FHA-insured product 65% of the time.
The Department of Housing and Urban Development has also been a key ally in ensuring mortgage access for LGBTQ+ individuals, as it ruled back in 2012 that FHA-approved lenders could not discriminate against applicants based on actual or perceived gender identity or sexual orientation.
Its rulings have had ripple effects throughout the financial industry, and it reaffirmed its commitment in 2023 by releasing a new educational toolkit to ensure that all mortgage professionals recognize their responsibility to LGBTQ+ buyers as related to the Fair Housing Act.
An Alabama FHA loan is ideal for the first-time homebuyer or the Alabama buyer who may not have owned a home in the last few years. It is also a good option for those interested in buying a home but with less-than-perfect scores. Not to mention, it is an ideal option for those interested in refinancing their existing loan.
Benefits of Federal Housing Administration Loans in Alabama
The FHA mortgage program can make the dream of owning an Alabama home a reality for many. Here are a few of the top benefits of an FHA loan.
Small Down Payment Options
The traditional down payment of an Alabama FHA loan is between 3.5% and 10%. Alabama buyers with good credit scores may qualify for a 3.5% down payment, whereas those with a lower credit score may need to come up with a 10% down payment.
Alabama FHA loans do allow for gifted funds. Family and friends can gift money toward the down payment and closing costs of an FHA loan.
Additionally, some buyers may qualify for Alabama down payment assistance programs. The Alabama Housing Finance Authority offers a subsidy grant that helps interested buyers come up with a down payment. The Downpayment Assistance Program, through the city of Huntsville, offers buyers assistance of up to $10,000 to cover down payment and closing costs. Pride Lending also has access to nationwide assistance programs, some of which are specially formulated for marginalized and minority groups. We’ll seek out any financing options that we feel meet your needs.
Competitive Interest Rates
If you are interested in an FHA loan in Texas, then you should understand the benefits of this option. Here are a few advantages Texas homebuyers will experience with FHA loans.
Flexible Underwriting Guidelines
Underwriting is the process of evaluating a borrower’s risk. Since these borrowers are in more precarious financial situations, most applications are underwritten manually. What loan officers look for during the underwriting process is usually more flexible with FHA loans, whereas a conventional product would have more strict requirements.
Assumable Mortgages (Buyer Can Take over Existing FHA Loan)
An FHA mortgage on a house in Texas may be eligible as an assumable mortgage for a new buyer. Essentially, instead of taking out a new loan to buy a house, you take over the debt and payments for an existing FHA mortgage and become the new owner of the house. This is an excellent option for people with spotty credit reports.
FHA Loan Requirements
Every lender will have their own requirements for the FHA program. However, the typical Texas FHA loan requirements are as follows.
Minimum Credit Score
To qualify for an FHA home loan, you should aim for a credit score of 580 or better, as they will allow you to access the best rates and lowest upfront expenses. Lenders approving FHA mortgages may allow for scores as low as 500 if they offer at least 10% upfront.
Down Payment Amount
As mentioned previously, the minimum down payment for an FHA mortgage is 3.5% for those with a score of 580 or greater; those with scores between 500 and 579 must make a minimum payment of 10%. Although this is a low down payment and makes homes more affordable, it also means you would pay a private mortgage insurance premium (MIP).
We understand that even 3.5% can feel like a challenge depending on your personal finances, but Pride Lending is here to assist. We’ll connect you with local, state, and nationwide down payment assistance programs that can provide you with grants or second liens.
Numerous organizations in Texas offer assistance for those who can’t afford their upfront costs. For example, you may choose DPA programs from the Texas State Affordable Housing Corporation (TSAHC) or the Texas Homebuyer Program from the Texas Department of Housing and Community Affairs.
Debt-To-Income Ratio (DTI)
DTI compares your monthly debt payments to your gross monthly income. You divide your debt total by the gross income each month and then multiply by 100 to get a percentage. The typical lender will require a maximum DTI of 43%. Lenders can make an exception to a maximum DTI of 57% if the borrower has a good credit profile and provides a larger down payment.
Property Standards
Since the government is backing this mortgage, approval for the property type is needed before the loan is given. An appraisal will ensure the property is safe to occupy and up to standards for liveable conditions.
Additionally, this home must become your primary residence to qualify. However, it is possible to purchase a property with up to 4 units and rent up to 3 units, as long as one is used as your permanent residence.
Mortgage Insurance Premiums (MIP)
Everyone, no matter how much they put down, needs to pay the upfront mortgage insurance premium, which is 1.75% of the loan amount. You’ll also have to pay ongoing annual mortgage insurance premiums, though this may not be for the entire length of the loan.
If you make a 10% down payment or more, the MIP will be removed after 11 years, but if you make less than this, you’ll have MIP for the entirety of the loan. It’s also possible to refinance into a conventional loan once you have 20% equity, which would remove mortgage insurance.
Alabama FHA Loan Limits
The FHA loan program sets limits on how much a borrower can finance. These FHA loan limits depend on current annual limits and property types. All counties in Alabama have an FHA loan limit of $498,257 for 2024 for a single-family home. Borrowers who purchase a multi-family property can expect higher loan limits, up to $958,350 for a four-unit property.
The FHA Loan Process
Obtain an FHA loan in Alabama with the following step-by-step process:
See if you meet the requirements
Evaluate if you have a credit score of 580 or greater, a DTI of 43% or lower, and that you meet the down payment requirement of 3.5%. You may still qualify if you have a score as low as 500 or a DTI of 57%, but this may limit your choices.
Contact Pride Lending
When you reach out to us, we’ll begin your loan consultation by reviewing your options with you. FHA-approved lenders are qualified to give out these mortgages, and finding the right loan partner is the key to a positive homebuying experience.
Apply and get pre-approved
Pre-approval will prepare you for a smoother buying experience and help you understand what you can afford. You will need many documents for your application, including tax returns, paychecks, and bank statements.
Shop for the perfect home
Once you’ve been preapproved, we’ll discuss your budget with you and send your preapproval letter to your realtor. You can then begin shopping for the right property in your area.
Submit an offer
You and your realtor will decide on a competitive bid and submit the letter to the seller.
Complete the application
The application is called the Uniform Residential Loan Application and will include many of the same details you needed for preapproval; however, it will also include property details, which the lender will use to determine whether the property meets their standards.
Offer acceptance
The seller will decide if they find your offer acceptable. If they do, then you’ll sign a purchase contract that tentatively agrees to buying the home.
Inspection
While not strictly necessary for the program, the lender will likely require you to have the property inspected, ensuring that there are no significant issues.
Conditions
If you’re happy with the inspection results, then our team at Pride Lending will walk you through the sales contract and make sure everything is correct.
Underwriting
We will submit all the details that you have provided to the lender, whose underwriting team will now take over. They will carefully investigate each facet of the loan and ensure that there are no issues with you or the home.
Appraisal
An approved appraiser will evaluate the property to determine if it is a fair value, is safe to live in, and meets the property requirements for FHA home loans.
Loan approval
Once the appraisal is complete and the details of the loan have been reviewed, the lender will proceed with the final approval of your loan so that you can close on the transaction. We will schedule the closing date with you and the title company will send the information regarding how to pay the upfront expenses.
Close on the home
All the documents will be signed, the title will be transferred to you, the closing costs will be paid, and you will become the new owner of that house with the help of an FHA home loan.
Why Choose Pride Lending for Your Texas FHA Loan?
When you need the right team on your side to navigate the Texas FHA program, a loan officer from Pride Lending is ready to help. We serve all our clients with the same care, offering excellent customer service and a streamlined application process to make homeownership affordable and accessible.
Our team is composed of allies and members of minority communities, including LGBTQ+ and BIPOC individuals. We’re here to help everyone, no matter their identity, and serve as an advocate for those who may feel underserved by the mortgage industry.
First-time homebuyers and repeat buyers alike can work with Pride Lending whether they want to buy a single-family home or learn about an FHA reverse mortgage. Call us today at 725-231-0192 to learn more about Texas FHA loans.