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JD MORTGAGE® connects you with lenders who want to help you build a new home or renovate an existing property. We find the lenders that offer terms specially tailored to your goals.
Offered exclusively through Biglaw Investor, we make it incredibly simple to find the best loan for your construction financing needs.
Nearly one in four Alabama households are considered cost-burdened, meaning they spend more than 30% of their income on housing costs, according to the American Community Survey. And it’s not just low-income families who are struggling; nearly half of the state’s middle-income households are also cost-burdened. From Birmingham to Montgomery and everywhere else in Alabama, there’s a huge demand from homebuyers.
There are several reasons for this crisis. One is that wages have not kept up with the cost of housing. Over the past two decades, wages have declined when adjusted for inflation. At the same time, rental prices have been increasing rapidly; according to Apartment List data, rents in Alabama increased by an average of 33% between 2000 and 2020.
It’s no secret that the cost of home ownership keeps increasing while affordable housing availability decreases. So what’s the solution? One option is to take out a construction loan and build your own home. This can be more cost-effective than renting, especially if you plan to stay in your home for a long time. Unlike home loans, construction loans help you make the changes you want to your property so that you purchase an existing property to turn it into your dream home.
Construction loans can be a great way to get your project off the ground, but it’s essential to make sure you choose the right lender and work with a loan officer who has experience with construction projects. With the demand for real estate and problems with new home accessibility higher than ever before, it‘s a good idea to look into construction loans as an alternative to a traditional mortgage loan.
Taking out a construction loan is one of the most effective ways to finance building your dream home in Alabama. With a construction loan, you can purchase land or an existing property, demolish any existing structures if needed, and then construct a new home from the ground up.
Construction loans offer more flexibility than traditional mortgages and allow you to draw funds incrementally as your build progresses. This ensures you only pay interest on the amount disbursed, not the full loan amount.
But to get approved for one of the competitive construction loan rates in Alabama, you’ll need to understand the loan process, requirements, and current market conditions. This guide will cover everything you need to know, including
Overview of Construction Loans in Alabama
There are two main types of construction loans offered by lenders in Alabama:
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Single-close construction loans – Also known as one-time close loans. This option provides both the construction loan and permanent mortgage in a single loan closing. Once construction is complete, the loan automatically converts to a traditional fixed-rate mortgage
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Two-close construction loans – Also known as construction-to-permanent loans. Here, you’ll close on two separate loans – the short-term construction loan and the long-term permanent mortgage. This may have lower upfront costs but requires paying closing costs twice.
Construction loans allow you to lock in a fixed interest rate upfront, avoiding unpredictable rate hikes during the build. And you’ll work with a single lender from start to finish, streamlining the lending process.
Construction Loan Rates in Alabama
Current construction loan rates in Alabama range from 5.5% to 7.5% for well-qualified borrowers. Rates are based on your credit score, income, debt-to-income ratio, and other financial factors.
Construction loan rates are generally 0.5 to 1% higher than rates for traditional mortgages. This accounts for the increased risk lenders take on with construction projects.
Rates are also heavily influenced by broader economic conditions. As the Federal Reserve raises benchmark rates to fight inflation, construction loan rates will trend upwards as well.
Factors That Influence Your Construction Loan Rate
When applying for a construction loan in Alabama, these key factors will determine the rate and terms you’re offered:
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Credit score – The higher your score, the better your rate. Scores of 720+ qualify you for the lowest rates.
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Down payment – Most lenders require 10-20% down. Larger down payments equate to better rates.
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Debt-to-income ratio – Your total monthly debt payments divided by gross monthly income. Most lenders look for ratios below 40-45%.
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Loan type – FHA loans allow down payments as low as 3.5% but have higher rates. Conventional loans require 20% down but offer better rates for those who qualify.
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Loan term – Shorter loan terms (e.g. 15 years) have lower rates than longer terms (e.g. 30 years).
Construction Loan Requirements in Alabama
To qualify for a construction loan in Alabama, you’ll need to meet these general requirements:
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Credit score – 620 minimum in most cases, with scores of 700+ recommended for the best rates
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Down payment – At least 10-20% down payment, depending on the lender and loan type
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Debt-to-income ratio – Maximum of 45% front-end DTI and 50% back-end DTI
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Stable income – Steady employment and income history is required
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Construction plans – Detailed plans, budget, timeline, and builder’s contract must be submitted
Having an established relationship with the lender can also help improve your chances of approval.
Shop Multiple Construction Loan Lenders
Casting a wide net and shopping rates from several lenders is key to securing the best deal. Construction loan rates and fees can vary significantly between lenders.
Dedicated construction lenders tend to offer the most competitive rates. Some top lenders active in Alabama include:
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Citizens Bank & Trust – Local bank with construction lending expertise
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Wintrust Mortgage – Top 20 retail mortgage lender with options for one-time close loans
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West Alabama Bank – Small local bank that can customize loan terms
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Bank of England Mortgage – Offering zero down payment options on some loans
Be sure to get rate quotes from multiple lenders and compare all costs and fees. This will help you identify the lender offering the optimal construction loan rate for your scenario.
Lock In Your Rate ASAP
One of the biggest benefits of construction loans is the ability to lock in your interest rate at the time of application, before construction begins. This allows you to avoid unpredictable rate hikes during the build.
In today’s rising rate environment, locking in your rate as soon as possible could save you thousands over the life of the loan. Delaying could leave you stuck with a significantly higher rate once construction is underway.
Most lenders allow rate locks for 30 to 180 days. Just be aware that longer rate locks often incur upfront fees.
Construction Loan Rate Considerations
When evaluating construction loan rates in Alabama, be sure to look at the full picture:
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Upfront fees – Application, origination, underwriting, and other fees to consider
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Discount points – Paying points upfront can lower your rate
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Index – Loans may be tied to Prime Rate, LIBOR, or 10-year Treasury
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Margin – The spread added to the index to determine your final rate
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Rate caps – Maximum rate limits that provide some protection from rising rates
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Conversion costs – Fees to convert to a permanent mortgage if using a two-close loan
Running the numbers for total costs, not just interest rates, ensures you get the best overall deal.
Work With an Experienced Loan Officer
An experienced construction loan officer will be invaluable in navigating the loan process, submitting a winning application, and securing the best rate.
Look for loan officers intimately familiar with Alabama’s construction lending landscape. They can guide you on the most competitive loan products and help tailor your application to improve approval odds.
Getting pre-approved also shows sellers you’re a serious buyer and can give you a leg up on securing your preferred lot or property.
The Bottom Line
Construction loan rates in Alabama tend to run from 5.5% to 7.5% currently, but can vary substantially depending on your financial profile and chosen lender. Moving swiftly to apply and lock in your rate, shopping multiple lenders, and working with an experienced loan officer will help ensure you get the lowest rate and smoothest lending experience.
With a competitive construction loan in hand, you’ll be primed and ready to start building your dream home in Alabama!
4 Best Alabama construction loans
Citizens Bank & Trust is a small bank in northern Alabama with plenty of experience processing construction loans, and therefore make a good choice if you are looking for a local lender with a lot of experience.
We contacted Citizens Bank & Trust to get details on their construction loan and this is what they told us about the program:
- Offers loans for home construction or land/lot purchases
- Available for primary residence or secondary home construction
- Draw system: funds can be disbursed in stages as construction progresses
- May roll into permanent loan, saving on closing costs
- Local decision-making and processing
When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.
Wintrust Mortgage is one of the top 20 bank-owned retail mortgage originators in the country that originates in excess of $4 billion in loans annually in all 50 states.
Recently we asked Wintrust Mortgage to provide us with details on their construction loan and this is what they said:
- One-Time Closing. Only pay the closing cost once
- Lock in your rate upfront and avoid interest rate risk
- FHA, VA, and Conventional options
- 0% Down up to $822,375 (VA ONLY)
- 3.5% Down up to FHA County Limits ($356,362-822,375)
- 10% Down on Second homes
- FICO 680+
- Loans must include building no Lot/Land Loans
- Maximum of 10-acres per build site
- Stick Built and Modular Homes ONLY
- NO log homes or metal homes (barndominium)
- Tear Down and Rebuilds do qualify
- No self-build or owner builders. The builder must be approved.
- Does Not allow ADUs (Accessory Dwelling Unit – Granny Flat/Garage Conversions/Basement)
- Now lending in all 50 States
When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.
West Alabama Bank
As the name suggests, West Alabama Bank is located in western Alabama and is a small bank with a construction loan project if you’re interested in building a home or purchasing land in Alabama.
We went look for more details about the West Alabama Bank construction loan and this is what we found:
- Interest-only payments until construction is complete
- Small bank with flexibility to customize terms for your project
- Can use funds for home improvement purposes
When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.
Construction Loans: What They Are and How They Work (IN DETAIL)
FAQ
Are construction loan rates higher than mortgage rates?
What is the lowest down payment for a construction loan?
What are US construction loan rates?
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Term
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Rate “As Low As”
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APR* “As Low As”
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10 Years
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6.750%
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7.033%
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15 Years
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6.875%
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7.077%
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15 Years Jumbo
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7.000%
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7.083%
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20 Years
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7.375%
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7.540%
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Is it a good idea to get a construction loan?
What types of construction loans are available in Alabama?
In Alabama, borrowers can choose between several types of construction loans, including one-time close loans and construction-to-permanent loans. It’s important to understand the terms and requirements of each type of loan before choosing which one to apply for.
How do I get a construction loan in Alabama?
Lenders will typically require borrowers to have a detailed construction plan, including timelines and budgets, as well as a qualified builder who is licensed and insured. In Alabama, borrowers can choose between several types of construction loans, including one-time close loans and construction-to-permanent loans.
How much does a construction loan cost?
40% Land Loan – $500,000, Construction Loan – $1,500,000 6-8 weeks If you have previously used a lender that is not on this list or if you are a lender that offers construction loans in this area and are not on this list, please contact ushere. Get Our Guide to Buying a Prefab House
How do I get a great rate on a construction loan?
Leverage the equity you have in your lot or land to get a great rate on your construction loan. You have plenty of time to complete your build and pay off your loan or convert it to a mortgage. Get started with a down payment of just 20% on your total estimated costs to build.