Mortgage Guide for Alabama

Mortgage rates are set by lenders and vary daily. This guide focuses on structural factors that affect your loan in Alabama.

Property Taxes Among the Lowest in the Nation

Alabama’s effective property tax rate of approximately 0.40% ranks among the lowest of any state, well below the national median of approximately 1.1%. On a $216,000 home, annual property taxes come to roughly $864, or just $72 per month in escrow. By comparison, a borrower purchasing the same-priced home in a state with a 1.1% effective rate would pay approximately $2,376 per year, or $198 per month. That $126 monthly difference directly affects your debt-to-income ratio: lower property taxes mean more of your income qualifies toward the mortgage itself, effectively increasing the loan amount you can carry at any given income level. Alabama also offers a homestead exemption for owner-occupied primary residences that can further reduce assessed value, though the exemption amount varies by county and municipality .

Transfer Tax Structure

Alabama imposes a deed recording tax of $0.50 per $500 of consideration, which works out to $1.00 per $1,000 of the sale price, or 0.10%. On a $216,000 purchase, the deed tax totals $216. This is among the lowest transfer tax burdens in the country and is customarily paid by the buyer at closing. Alabama does not impose a separate mortgage recording tax on the loan amount , nor are there county or municipal transfer tax surcharges. Combined with low property taxes, the minimal transfer tax keeps Alabama’s total tax-related closing and ownership costs well below national averages.

Conforming Loan Limits Apply Uniformly

All 67 Alabama counties use the baseline conforming loan limit set by FHFA. There are no high-cost county designations in the state, which means borrowers seeking loans above the baseline must use jumbo financing with its stricter credit requirements and larger down payments. However, given Alabama’s statewide median home price of approximately $216,000 , most purchases fall well within the conforming limit. Even in the state’s most expensive markets, including Huntsville, Birmingham, and the Gulf Coast, typical home prices remain comfortably under the ceiling, making conventional conforming, FHA, and VA loans the dominant financing paths.

Alabama Housing Finance Authority Programs

The Alabama Housing Finance Authority (AHFA) administers the state’s primary homebuyer assistance programs. The Step Up program provides below-market interest rate first mortgages paired with down payment assistance, which can make the difference between renting and owning for moderate-income households. AHFA also offers a Mortgage Credit Certificate (MCC) that provides an annual federal income tax credit based on a percentage of mortgage interest paid. These programs have income and purchase price limits that vary by county, and most require completion of a HUD-approved homebuyer education course. Federal loan programs are also widely used in Alabama: USDA loans are particularly relevant given the large number of rural-eligible areas across the state, and VA loans serve the significant military population near Huntsville’s Redstone Arsenal and the Mobile area’s military installations.

Insurance Costs and Coastal Exposure

Alabama’s statewide average homeowners insurance rate of approximately 0.37% of home value results in annual premiums of roughly $799 on a $216,000 home, or about $67 per month. This is moderate by national standards, but the statewide average masks significant geographic variation. Mobile and Baldwin counties along the Gulf Coast face substantially higher premiums due to hurricane and windstorm exposure. Buyers in coastal areas may need to obtain separate windstorm coverage if their standard policy excludes wind damage, and properties in FEMA-designated flood zones will require flood insurance as a condition of the mortgage. The Alabama Insurance Underwriting Association provides wind and hail coverage for coastal properties that cannot obtain it through the private market . Inland areas of the state face tornado risk, which is covered under standard homeowners policies but can still affect premium pricing in high-frequency corridors.

Huntsville Metro: A Diverging Market

While Alabama’s overall housing market remains affordable, the Huntsville metropolitan area has experienced rapid price appreciation driven by the defense, aerospace, and technology sectors anchored at Redstone Arsenal and the growing Cummings Research Park. Median home prices in the Huntsville metro have diverged from the statewide figure, with values in some Madison County subdivisions exceeding $350,000 . Borrowers shopping in the Huntsville area should expect qualification thresholds, down payment requirements, and monthly payments that differ meaningfully from the statewide averages used in this guide. The Birmingham metro, Alabama’s largest by population, has maintained more moderate price levels with a broader range of affordable inventory.

What This Means for Your Monthly Payment

On a $216,000 Alabama home with 10% down ($194,400 loan) at a 6.5% interest rate, estimated monthly costs break down as follows: principal and interest of approximately $1,229, property tax escrow of approximately $72, homeowners insurance of approximately $67, and PMI of approximately $81 (assuming a 0.5% annual PMI rate on the loan balance). The total estimated monthly payment is approximately $1,449. Alabama’s low property tax rate is the standout factor here: the $72 monthly tax escrow is less than half what a borrower would pay in a median-tax state on the same home price. Combined with affordable insurance rates and a low purchase price, the total payment compares favorably to neighboring states. Closing costs are also modest, with the $216 deed tax and no separate mortgage recording tax keeping upfront expenses contained. PMI rates vary by credit score, loan-to-value ratio, and insurer, so your actual cost may differ from this estimate.