Alabama FHA Loan Requirements And Guidelines

by Gustan Cho

This Article Is About Alabama FHA Loan Requirements And Guidelines

Alabama FHA Loan Requirements And Guidelines are more lenient than other mortgage loan programs. HUD, the parent of FHA, created and launched lenient Alabama FHA loan requirements to promote hard-working families to be able to become homeowners with less than perfect credit and a 3.5% down payment. Homebuyers in Alabama can qualify for an FHA loan in Alabama with a 3.5% down payment with at least a 580 credit score. HUD allows home buyers with credit scores as low as 500 FICO to qualify for an FHA loan. However, if borrowers have credit scores between 500 to 579 FICO, per HUD, the down payment requirement is 10% versus a 3.5% down payment on a home purchase. Alabama FHA mortgage requirements on credit scores are substantially lower than conventional loans. Fannie Mae and Freddie Mac require a 620 credit score on conventional loans. In this article, we will discuss and cover the Alabama FHA Loan Requirements and Guidelines on FHA loans for homebuyers.

The Booming Alabama Housing Market

The Booming Alabama Housing Market

The housing market in Alabama is booming. Home prices are skyrocketing year after year. The great news is even with the skyrocketing home prices in Alabama, prices are still below the national average. Homes are still affordable. Many Americans from high-taxed states are choosing Alabama as their home. The number of residents migrating to Alabama is at historic highs. Gustan Cho Associates is a mortgage lender licensed in multiple states including Alabama. The team at Gustan Cho Associates dba Capital Lending Network, Inc. has seen a consistent increase of borrowers in Alabama. Many homebuyers are people who are relocating to Alabama from other states. Capital Lending Network, Inc. has dozens of mortgage loan originators licensed in Alabama. Many people are leaving Florida and Texas due to high home prices and relocating to Alabama. The state of Alabama has a lower cost of living and lower home prices than Florida and Texas.

Jammi Cash is a senior loan officer at Gustan Cho Associates dba Capital Lending Network, Inc. and is based in Alabama. Jammi issued the following statement.

According to the Alabama Association of Realtors, June home sales in the state increased 14.4% year-over-year (Y/Y) from 7,198 to 8,234 closed transactions, marking 13 consecutive months of Y/Y gains and the highest monthly sales total in the Alabama Center for Real Estate’s database. Following seasonal trends but to a greater degree, sales increased 18.7% from May. Sales are now up 21.8% year-to-date. Two more resources to review: Quarterly Report and Annual Report. For all statewide housing data, click here. June listings (9,954) increased 6.3% from May, the first month-over-month (M/M) inventory gain since the onset of the pandemic in April 2020. However, housing inventory in the state still remains tight, with listings down 39.4% from one year ago and the last Y/Y inventory gain in February 2015. Months of supply (inventory to sales ratio) also decreased from 2.3 months to 1.2, a record low and reflecting a market where sellers generally have elevated bargaining power. The statewide median sales price in June was $216,580, a record high and an increase of 11.7% from one year ago and 4.9% from May. The differing sample size (number of residential sales of comparative months) can contribute to statistical volatility, including pricing. ACRE recommends consulting with a local real estate professional to discuss pricing, as it will vary from neighborhood to neighborhood. Homes sold in June averaged 48 days on the market (DOM), a record low and 36 days fewer than one year ago.

Alabama is a great state to relocate to. The coronavirus pandemic has changed the business model of workers for thousands of companies. Many companies have wage earners become remote workers. Remote workers do not have to report to a brick-and-mortar location. They can live in any state in the nation. Alabama is one of the top states many remote workers are locating to and calling the state their new home.

Alabama FHA Loan Requirements For Homebuyers

As mentioned earlier, Alabama FHA Loan Requirements are more lenient than other loan programs. FHA loans benefit homebuyers who are looking to put a low down payment with a lower credit score. Borrowers with prior bad credit and outstanding collections and charged-off accounts will have a better chance of getting an approve/eligible per automated underwriting system with FHA loans versus conventional loans. Capital Lending Network, Inc. is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. Over 75% of our borrowers are folks who could not qualify at other lenders or got a last-minute mortgage loan denial.

Agency Mortgage Guidelines Versus Lender Overlays

Agency Mortgage Guidelines Versus Lender Overlays

There are two different types of agency mortgage guidelines on FHA loans. The first mortgage guideline is the HUD agency mortgage guidelines on FHA loans. Every borrower of FHA loans needs to meet the minimum HUD agency mortgage guidelines. Borrowers who do not meet the minimum agency mortgage guidelines on FHA loans and default on their loans, the lender will not be insured by HUD. HUD will only insure and partially guarantee FHA loans to lenders that have borrowers meet the minimum agency guidelines of HUD. The second type of mortgage guideline is the lender overlays. Lender overlays are the lending requirements of the individual mortgage company. Mortgage companies can have higher lending requirements that are above and beyond the minimum agency mortgage guidelines of HUD. This additional lending requirement is called lender overlays. Lenders can have lender overlays on just about anything.

Typical Lender Overlays On FHA Loans Versus Agency Alabama FHA Loan Requirements And Guidelines

Mortgage lenders can have lender overlays on just about anything. Here are the typical mortgage lender overlays imposed by lenders:

  • Lenders often require a 620 or higher credit score requirement as part of their lender overlays instead of the minimum 580 credit score requirement by HUD
  • Not all lenders will do a manual underwrite
  • Most lenders have a lower debt to income ratio cap than HUD’s maximum 46.9% front-end and 56.9% back-end DTI guideline
  • Most mortgage companies will not do FHA loans under 580 credit scores
  • Lenders can require collections and charged-off accounts to be paid off even though HUD states you do not have to
  • Gift funds may not be allowed as part of the lender overlays
  • Overdrafts may be an automatic disqualification for an FHA loan per the lender overlays
  • A lender may require a minimum number of credit tradelines: HUD does not require credit tradeline requirements

Mortgage companies can have many lender overlays. Not all mortgage companies have the same lender overlay requirements. One lender may have one type of lender overlays while another lender may not. Just because you do not qualify at one lender may not mean you can not qualify at a different lender. It is very important for borrowers with bad credit or lower credit scores to understand the basic Alabama FHA loan requirements and guidelines on FHA loans. As long as you meet the minimum agency Alabama FHA Loan Requirement, you will qualify and get approved for an FHA loan in Alabama. Gustan Cho Associates dba Capital Lending Network, Inc. has zero lender overlays on FHA loans. We just go off the minimum HUD agency mortgage guidelines. Over 75% of our borrowers at Capital Lending Network, Inc. are folks who could not qualify at other lenders due to their lender overlays or being denied for a mortgage at the last minute.

HUD Alabama FHA Loan Requirements And Guidelines

HUD Alabama FHA Loan Requirements And Guidelines

Below is a list of the minimum agency mortgage guidelines and requirements required by HUD on FHA loans for a lender to be insured by HUD in the event of the borrower defaulting on their FHA Loans:

  • A minimum of 580 credit score to qualify for a 3.5% down payment home purchase FHA loan
  • HUD requires a 10% down payment if the borrower has credit scores under 580 and down to a 500 FICO
  • Gift funds are allowed from family members to cover the down payment and/or closing costs
  • Non-occupant co-borrowers are allowed if the borrower cannot meet the minimum debt to income ratio caps required
  • The maximum debt to income ratio caps allowed to get an approve/eligible per automated underwriting system is 46.9% front-end and 56.9% back end
  • The main borrower can have as many non-occupant co-borrowers on the FHA loan
  • To qualify for a 3.5% down payment home purchase FHA loan with non-occupant co-borrowers, the non-occupant co-borrowers need to be related to the main borrower by blood, law, or marriage
  • HUD allows non-family members to become non-occupant co-borrowers but a 25% down payment versus a 3.5% down payment is required
  • Only one to four-unit owner occupant homes are eligible for FHA loans
  • HUD does not allow second homes, or investment properties to be eligible for FHA financing
  • Borrowers need to provide a two-year employment history
  • Recent graduates of high school, trade school, community college, college, or graduate schools do not need previous 2-year employment history
  • The years spent studying in schools can be used as work experience in lieu of actual work experience
  • Gaps in employment in the past two years are allow
  • There is a two year waiting period after the Chapter 7 Bankruptcy discharged date
  • There is a three year waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for an FHA loan
  • Borrowers in an active Chapter 13 Bankruptcy repayment is eligible for FHA financing via manual underwrite after being in the Chapter 13 repayment plan for at least 12 months with trustee approval
  • There is no waiting period after the Chapter 13 Bankruptcy discharge date
  • If the Chapter 13 Bankruptcy discharge has not been discharged for at least 24 months, the file needs to be a manual underwrite

As long as you meet the above Alabama FHA Loan Requirements, you will qualify and get approved for an FHA loan. Not all mortgage companies may honor just the minimum agency HUD Alabama FHA loan requirements but there are lenders like Gustan Cho Associates that have zero lender overlays on FHA loans.

Qualifying For An FHA Loan In Alabama With A Mortgage Company With No Lender Overlays

FHA loans are hands down the easiest loan program to qualify for first-time homebuyers, buyers with prior bad credit, homebuyers with no credit scores, or buyers with lower credit scores. Capital Lending Network, Inc. has a national reputation for its no-lender overlays on FHA loans. FHA loans are for both first-time homebuyers, seasoned home buyers, and buyers with prior bad credit. FHA loans are for both home purchase and refinance mortgage transactions. If you are a homebuyer in Alabama and need to qualify for an FHA loan with a lender with no lender overlays, please contact us at Capital Lending Network, Inc. at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Capital Lending Network, Inc. is available 7 days a week, evenings, weekends, and holidays. Capital Lending Network, Inc. has a national reputation of being able to do loans other lenders cannot do. We are mortgage bankers, correspondent lenders, and have the ability to broker non-QM and specialty mortgage loans. This is why we are known as a one-stop mortgage shop.

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