Buying A House In Alabama: A Complete Guide

So, you’re thinking of searching in Alabama for your next abode? Good for you! Alabama offers a lot to its residents with cities both big and small.

Perhaps you enjoy a diverse landscape that offers both mountains (like the Tennessee Valley) and waterfront (like Mobile Bay)? Or maybe you’re a big college football fan looking to tailgate on game day while screaming “roll tide” at the top of your lungs. Whatever your motivation might be, we’ll take a deeper dive on how to buy a house in Alabama.

Most of this information is state-specific and is intended to complement the more general information you can (and should) find on the process of buying a house.

Understand The Alabama Housing Market

To make the most informed decision when moving to any state, it’s a good idea to get your finger on the pulse of the market rather than just browsing homes for sale. Understanding how much the average house is worth, how long they usually stay on the market and other key factors will help you enter the buying process with eyes wide open and cut down on the surprises.

Alabama House Prices

The median list price for a home in Birmingham, Alabama is  $197,000 as of March 2022. This is important to note both for your home purchase now and if you decide to sell in the future.

In 2021, the average time it took to sell a home in Birmingham, Alabama was approximately 75 days. This is the time period starting when the house is first listed on the market all the way to the closing table. If you figure in the typical time it takes to close once an offer is accepted (35 days) that means the average amount of time from listing to offer is 40 days.

What does that mean for you? Well, if a house has been on the market for a lot longer than 40 days in Birmingham, that may mean there’s something off about it or that it can be bought at a price lower than what is being asked for by the seller. If it hasn't sat for 40 days, getting it at a reduced price could be less likely.

Of course, all of these stats will change quite a bit depending on which city or town you’re interested in living in. Understanding how specific city real estate markets work is the best way to make an informed move. With that in mind, let's look at the most expensive, least expensive and hottest market cities so you can find the best place to live in Alabama.

Most Expensive Cities In Alabama

Let’s start with some of the pricier options by looking at the top five most expensive cities in Alabama as measured by median list price:

Mountain Brook

Median list price: $949,350

Indian Springs Village

Median list price: $533,500

Orange Beach

Median list price: $525,048

Vestavia Hills

Median list price: $421,555

Homewood

Median list price: $394,000

Least Expensive Cities In Alabama

Working with a smaller budget? No worries. These Alabama cities have plenty to offer, including more affordable home prices:

Roanoke

Median list price: $110,000

Attalla

Median list price: $134,900

Montgomery

Median list price: $150,963

Birmingham

Median list price: $178,244

Lincoln

Median list price: $239,500

Hottest Housing Market In Alabama

Knowing the most and least expensive cities is important but understanding which market is on fire from a real estate perspective is important to note as well.

Birmingham, Alabama

Once a mostly manufacturing city, Birmingham has transformed itself into a medical research power. It also boasts a robust nightlife and restaurant scene, all tucked at the base of the Appalachian Mountains.

The time on market for homes listed for sale in the Birmingham area are down 70% since 2020. If you’re looking to move to Birmingham, be ready to compete for homes, because you’re not alone. When you’re deciding on where you should live, Birmingham might be at the top of your list. But if you’re not interested in possible bidding wars and rising home prices, maybe a different Alabama city is right for you.

How To Buy A House In Alabama As A First-Time Home Buyer

Now that you know the real estate lay of the land, you may be wondering how to get started on buying that sweet home in Alabama. If you’re new to the process, there are several Alabama-specific first-time home buyer programs. These are in addition to first-time home buyer grants and programs available nationwide.

Alabama Step Up

This homeownership program is designed for moderate-income home buyers who can afford a mortgage but need help with the down payment. Step Up helps by bringing the down payment to the table through a 10-year second mortgage that is combined with a 30-year, fixed-rate first mortgage, all in one monthly payment. Program participants must complete a homebuyer education course to qualify and must also earn $130,600 or less per year.

Alabama Affordable Income Subsidy Grant

This grant provides eligible borrowers help with closing costs and can be combined with the Step Up program. The amount you receive varies depending on a number of factors, and to qualify for this grant, your income cannot exceed 80% of the area median income (AMI) for the property’s location.

Alabama Mortgage Credit Certificates

Mortgage credit certificates (MCCs) give buyers another option to enjoy some savings by providing a tax credit to reduce the amount of federal taxes they’ll owe. These savings are calculated as a percentage of the annual mortgage interest paid each year on the loan and can be claimed as a deduction on the home buyer's federal tax return.

Determine Housing Costs In Alabama And What You Can Afford

Before you start asking your real estate agent to find that dream home and before you start perusing homes online, find out what price range you’re comfortable in. After all, it’s pretty disheartening to find that perfect house and then realize it costs twice what you can afford.

To determine how much house you can afford, there are four key variables: location, debt-to-income ratio, your monthly expenses and your savings. In addition to sales price, location determines a number of factors, including local taxes and insurance costs, which will impact your final home cost.

As far as debt-to-income ratio, that is pretty self-explanatory, as it is a calculation of how much you make in relation to how much you owe. The more you make and the less you owe the better, of course. Monthly expenses include things like groceries and utilities.

Calculating them ahead of time ensures you can keep those monthly necessities and amenities going once you add the mortgage payment to your monthly budget. And the last one, savings, goes a long way in determining how much you’ll be able to put toward a down payment and closing costs when you get the loan to buy a home.

Breakdown Of Alabama Standard Of Living

Another key factor in determining what you can afford is cost of living. This refers to the amount of money required to afford necessary expenses like housing, food and health care in order to maintain a particular standard of living.

Cost of living is considered relative to average wages and may be used as a metric in comparing the livability of different cities. This metric is calculated by examining the prices of a wide range of goods and services on which individuals typically spend their money.

While there are quite a few cost-of-living calculators online that will allow you to compare two different locations, you can also do the calculation yourself. Simply find out the cost-of-living index for each city online and then use this formula:

Cost Of Living Formula

[(City B − City A) ∕ City A] ✕ 100

Let’s say you currently live in Birmingham (City A), which has an index of 74.1, and want to move to Lincoln (City B), which has an index of 84.5. To compare the cost of living between these two cities, you would complete the following steps:

Subtract the index of your current city from the index of the city you want to move to: 84.5 − 74.1 = 10.4

Divide the resulting difference by the index of your current city: 10.4 ∕ 74.1 = .14

Multiply the resulting quotient by 100 to get the percentage: .14 ✕ 100 = 14%

So, in order to maintain your current standard of living after moving from Birmingham to Lincoln, you would need about a 14% increase in your income.

The good news is that if you’re moving to Alabama from another state, there’s a good chance the cost of living is going to be more affordable. Alabama has a cost-of-living index of 82.3. Since the indices are based on a U.S. average of 100, an amount below 100 means Alabama is cheaper than the U.S. average.

Other Considerations For Buying A Home In Alabama

Now that we have covered the general costs and how to pay for them when home hunting in Alabama, let’s take a look at some other considerations you might not know about.

Hurricane Insurance Is Required

If you’re moving from a state far away, you might not have ever thought about hurricane insurance before, or even knew about it. Well, it's time to start thinking about it, because it’s required. The annual payment for this will range from $1,400 – $1,800 and usually covers things that are broken or lost if one of these natural disasters visits your home.

Good Schools May Be Harder To Find

If finding great schools for your kids is at the top of your must-haves list for home searching, Alabama may prove a bit challenging. This recent ranking by Wallethub has the state ranked 44th out of 50 states in terms of the best and worst school systems.

The Bottom Line

Ultimately finding the right state to live in comes down to personal preference and personal finances. For many, Alabama has the perfect mix of affordability and appeal.

Information and data about listing prices and time on market in this article are from the 2022 Rocket Homes^SM Trend Report for each respective city. For more information on the market in your area, visit your local housing market report.

Information and data about listing prices and time on market in this article are from the April 2021 Rocket Homes^® Trend Report for each respective city. For more information on the market in your area, visit your local housing market report.