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Alabama Mortgage – What to Expect When Buying a Home in Alabama
Maybe youre buying your first home in Alabama, or perhaps youre relocating to Alabama from another state. Either way, its important that you educate yourself on Alabama home loans before shopping for a home and mortgage. This article explains what youll need to know before buying a home in Alabama:
The average price of a home in Alabama in October of 2005 was 147,678, and homes in Alabama appreciate at one-half of the rate of the average national home appreciation. The rate of job growth in Alabama is equal to the national average. However, income levels in many parts of Alabama are too low to purchase a median-priced home with a conventional loan.
Alabama is a non-community property state. This means that married persons do not have to include their spouses income and liabilities on their mortgage if they choose not too. Home buyers can simply leave their spouses name off of their application. Additionally, Alabama has a Fair Housing Act that prohibits housing providers from declining housing to anyone based on their race, color, religion, gender, or national origin.
If youre buying a home in the state of Alabama, you qualify for both federal and state FHA and VA loans. First-time home buyers qualify for Alabama FHA loans with below-market interest rates, and, depending on their income, may also qualify for down payment assistance. Additionally, Alabamas Step-Up program offers down-payment assistance to home buyers with moderate incomes.
Access Alabama is a state program that makes mortgages more affordable for both disabled residents and residents with a disabled person in their care. Through this program, Alabama residents with disabilities can get technical assistance with the home-buying process and assistance with down payment and closing costs.
Alabama also offers Mortgage Credit Certificates to first time home buyers. Mortgage Credit Certificates help first time home buyers manage the costs of purchasing their first home by reducing the amount of federal income tax that theyre required to pay.
Adverse Credit Mortgages – Home Loans For People With Poor Credit
Mortgage lenders offer many financing options for people with adverse credit. For those who dont qualify for an A loan, you can use a B, C, or D loan to finance the purchase of your home.
These home loans offer short-term financing until your credit score improves and you can qualify for an A loan with lower interest rates.
Adverse Credit
Adverse credit is when you have a bankruptcy, foreclosure, or several late payments in your credit history. You can mitigate these marks on your credit report by including a letter explaining the circumstances. A health emergency or temporary job loss may help lenders over look your credit blemishes.
Large down payments can also help reduce your credit risk for lenders, qualifying you for an A loan. The propertys location is also a factor. However, even with poor credit, you can buy your home with a B, C, or D loan.
B, C, and D Loans
B, C, and D loans are based on your credit risk, which includes your credit score, income level, and down payment. So a B loan will have higher rates than an A loan, but lower rates than a C or D loan. While you cant change your credit number overnight, you can improve your lending factors and qualify for better rates by increasing your down payment and reducing your mortgage amount.
Short Term Solutions
Subprime financing, which includes B, C, and D loans, offers a short term solution until you improve your credit score. An adjustable rate mortgage (ARM) offers lower rates than a fix rate mortgage and makes sense if you plan to refinance for better rates and terms in the future. An ARM will have low rates for 1 to 7 years and then adjust after that period based on your loan terms.
If you find a good rate even with a subprime lender and you plan to spend several years in your home, you may decide a fixed-rate mortgage will save you money in the long run. Before you decide on either type of mortgage, be sure you compare the risk levels and interest costs over the long term.
Over the last few years, many people squeezed into new homes using adjustable rate mortgages. With interest rates going up, you now need a new interest rate strategy
Adjustable Rate Mortgages ARMs
Adjustable rate mortgages carry a bit of a gamble for home owners. Essentially, you trade smaller interest rates and lower initial payments on the gamble rates will not increase over time. If rates stay low, you make out like a bandit. If rates increase, you need to consider your options to avoid getting stuck with a high interest rate loan and resulting cash flow problems from increased monthly mortgage payments.
For the last three or four years, adjustable rate mortgages have been offered with incredibly low interest rates. Many people used these low, low, low rates to buy homes that would otherwise be beyond their means. Starting in 2004, Federal Reserve Chairman Alan Greenspan started making noises about increasing money borrowing rates. He has followed through on these hints. Although mortgage rates arent tied directly to the Federal Reserve Bank, they are heavily influenced by it. As a result, many people are now facing tight finances.
Avoid Rising Rates
There are really only two solutions for avoiding the increase in interest rates on adjustable rate mortgages. The first strategy is to immediately convert to a fixed rate mortgage product. Fixed rates are still at historic lows when compared to rates offered over the last 50 years. By flipping to a fixed rate, you will be able to solidify your budget and finances since you will know exactly what you have to pay each month. If rates decrease in the future, you can always try to flip back to an adjustable mortgage loan.
Unfortunately, some home owners are simply going to have to face the fact they lost one the interest rate gamble. Typically, this will occur when you realize you simply cant afford to make the monthly payments required by getting a fixed rate loan. In such a situation, you are going to have to sell your home and downsize. In most situations, it is better to do this now since youve probably built up a sizeable chunk of equity over the last few years and want to avoid a loss of that equity as the market cools down. While this may sound like a disaster, it really isnt. Yes, you have to downsize, but you should still have built up a chunk of equity.
Interest rates are going up whether you want to acknowledge it or not. The time to deal with your adjustable rate mortgage is now, not when you straining to make payments.
The subprime mortgage crisis has been on the tip of everyone’s tongue lately, and the housing market has cooled. Rather than being discouraged by this, smart investors realize that this is the time for deals to be had. We’re in a buyer’s market, which is an enormous relief for buyers who have watched the market balloon over the last decade. But what if you are one of the thousands of people who got caught up in the low-interest madness, thinking you’d be making enough money to cover the difference when your rates reset?
If you are facing difficulties with your loan, remember that the ultimate goal is to maintain your credit rating. You may be able to negotiate with your lender, you may be able to refinance or you may be forced to sell your home now in order to buy one in the future, but the sooner you address the issue the more options you will have. By getting your finances in order you will be able to get on with your life sooner. Don’t add to your stress by ignoring your fiscal situation; follow these steps to getting back on track:
Know the details go over all your loan documents so that you are prepared for any upcoming resets or changes. When will your payments increase? By how much? Can you refinance? What kind of penalty would you face, if any? Cut in other areas can you take a roommate or a second job to help make your payments? You may need to look at significant changes in your spending and lifestyle. Do not make any major purchases at this time, and look at liquidating other assets, such as cars or boats, to help meet your payments.
Contact your lender You should take the initiative with your lender. Contact them before the problem becomes overwhelming. If you receive calls or letters from your lender respond to them as soon as possible. Do not wait to get too far behind lenders are less likely to move quickly into foreclosure if you are proactive. You want to speak to the right people ask for the loss mitigation or collections department. Be honest with them about your situation and don’t make promises you can’t keep.
Beware of foreclosure “rescue” rackets There are a number of scam artists targeting people in neighborhoods where foreclosure rates have been high. They approach troubled homeowners with promises to help them keep their houses. These “rescues” often come with payments that are out of reach of the average homeowner and result in homeowners being defrauded of their homes, sometimes still owing the original mortgage amount. Any company that approaches you with such an offer should be checked out through the Better Business Bureau, your state real estate commission and Attorney General. Do not sign anything without reading it all, get all promises in writing and ask your attorney or a financial professional to review any paperwork before you sign it.
Call a nonprofit group offering free housing advice for more information and counseling. They may be able to help you with your options. If you took out a loan between Jan. 1 2005 and July 30, 2007, are current on your loan payments and your mortgage has not yet reset to a higher rate, you may be eligible for a five year rate freeze.
If all else fails, negotiate a short sale – if you have missed more than two payments but your home has not yet gone into foreclosure you may be able to sell it for a price that falls short of what you owe the lender. If your mortgage holder agrees to accept the price and forgive the rest of your debt, they forgo the pricey foreclosure process and you walk away with minimal damage to your credit score. You can chalk it up to experience, save up a down payment and buy low.