Alabama First-Time Homebuyer Assistance Programs

Alabama is home to Gulf Coast beaches, scenic mountains, historic towns and NASA’s research center. Home values are on the rise in this southern state, with prices increasing more than five percent in the last year, according to real estate brokerage Redfin.

For first-time homebuyers, programs are available to make homeownership more affordable, including lower mortgage interest rates, looser lending requirements, down payment assistance and a tax break. The Alabama Housing Finance Authority oversees these programs.

Alabama first-time homebuyer loan programs

AHFA Step Up

First-time homebuyers can use the Alabama Housing Finance Authority’s (AHFA) Step Up program to obtain a fixed-rate mortgage. Through the program, eligible homebuyers (first-time or repeat buyers) can get a 30-year conventional (HFA Advantage), FHA, VA or USDA loan at a competitive rate and down payment assistance (more on that below).

• Requirements
  

  • Property must be in Alabama and serve as the borrower’s primary residence
  • Participants who earn $159,200 or less are eligible for the FHA/VA or Conventional (HFA Advantage) regardless of household size or location
  • Borrower’s credit score must be 640 or higher, depending on the loan type
  • Debt-to-income (DTI) ratio must be 45 percent or lower
  • Borrower must complete a homeownership education course

• Pros and cons
  

  Pros

  • Competitive interest rates
  • Open to first-time and repeat homebuyers
  • Nearly 100 participating lenders

  Cons

  • If down payment assistance is used, it must be repaid monthly

AHFA First Step

The AHFA First Step program is open to first-time and repeat homebuyers (in target areas) in Alabama. It provides below-market interest rates on 30-year FHA, VA, USDA and conventional (HFA Advantage) loans. Borrowers can also choose to receive down payment assistance.

• Requirements
  

  • Property must be the borrower’s primary residence and be located in Alabama
  • Can be a first-time buyer or repeat buyer (in target areas only)
  • Must have a credit score of 640 or higher
  • DTI ratio must be 45 percent or lower
  • Household income cannot exceed the area’s income limits (varies by location and household size)
  • Home’s purchase price cannot exceed $510,939 (in non-target areas) or $624,481 (in target areas)

• Pros and cons
  

  Pros

  • Open to first-time and repeat buyers
  • More affordable interest rates
  • Almost 100 participating lenders

  Cons

  • Only available to repeat buyers in target areas

Alabama down payment assistance and grants

AHFA Step Up and First Step down payment assistance

Along with the 30-year mortgages, AHFA’s Step Up and First Step programs include the option for down payment assistance of up to 4 percent of the purchase price or $10,000, whichever is less. The assistance funds are available through a 10-year second mortgage.

• Pros and cons
  

  Pros

  • Open to first-time and repeat buyers (depending on the loan program)
  • Can be used with conventional and government-backed loans
  • Borrowers can choose from nearly 100 participating lenders

  Cons

  • Isn’t forgivable; requires repayment on a monthly basis

AHFA Affordable Income Subsidy Grant

AHFA’s Affordable Income Subsidy Grant provides a grant to help with closing costs for people obtaining an HFA Advantage conventional loan. The amount equals .5 or 1 percent of your mortgage, depending on your income. You can combine the grant with the Step Up down payment assistance and a mortgage credit certificate to maximize your savings.

• Pros and cons
  

  Pros

  • Doesn’t require repayment
  • Can be combined with other AHFA programs

  Cons

  • Only available with HFA Advantage conventional loans

Mortgage credit certificate (MCC)

In addition to a competitive mortgage rate and down payment assistance, AHFA offers a mortgage credit certificate (MCC). An MCC is a tax credit, and in Alabama, it equals up to 50 percent of your mortgage interest, depending on the size of your loan, up to $2,000 each year — or up to 20 percent of your mortgage interest if your loan is higher than $150,001. You can get the tax break immediately by revising your withholding on your W-4 or get it once a year through your federal income tax return.

You can combine the tax credit with AHFA’s Step Up program or any other 30-year, fixed-rate mortgage available through a participating lender.

• Pros and cons
  

  Pros

  • Compatible with government-backed and conventional loans
  • Can be combined with the Step Up program (or other qualifying mortgages) for additional benefits

  Cons

  • Higher loan amounts receive lower credit rates

City specific homebuyer assistance programs

City and county homebuyer assistance may also be available in your desired home-buying location. Take a look at the options below for an overview of some of the larger Alabama cities’ offerings.

Downpayment Assistance Program, City of Huntsville, Alabama

If you live or want to live within the city limits of Huntsville, Alabama, you may be able to take advantage of its Downpayment Assistance Program (DAP). This program helps first-time homeowners by providing up to $10,000 for down payment and closing costs. If you qualify, you will be given the money as a zero percent interest second mortgage (no monthly payments required) forgiven after you live in the home for five consecutive years. You can apply through the city’s website.

• Requirements
  

  • Must be a first-time homebuyer
  • Must purchase an existing or new home within the city limits of Huntsville, Alabama
  • Meet income threshold — at or below 80 percent of AMI based on household size
  • Meet lender credit requirements (may vary)
  • Must take a homebuyer education course

• Pros and cons
  

  Pros

  • Doesn’t require repayment (if you follow the program guidelines)
  • Can be used for down payment and closing costs

  Cons

  • Repayment required if you sell, refinance or move out within the first five years

Decatur H.O.M.E

Low-income families can take advantage of financial assistance from the municipality of Decatur, Alabama. Assistance may include help with closing costs and/or paying one-half of the minimum down payment. Applicants must contact a Preferred Decatur H.O.M.E Realtor or mortgage company to get started on their application for assistance. The website states assistance and availability are subject to change.

• Requirements
  

  • Must not have owned a home in the last three years
  • Need to have mortgage loan approval
  • Must have never participated in the Decatur HOME program before
  • Attend a housing counseling course
  • Meet the income requirements (varies by household size)

• Pros and cons
  

  Pros

  Cons

  • Program can only be used one time
  • Can be used toward down payment or closing costs

City of Mobile’s First Time Home Buyers’ Program

Mobile, Alabama offers qualified homebuyers assistance of up to $15,000 to put toward a down payment and closing costs. You must stay for a minimum of five years to avoid having to pay back any assistance. To start the application process, you must contact a local partnering agency to begin homeownership counseling and classes. Partners are Consumer Credit Counseling Services of Mobile and Legal Services Alabama.

• Requirements
  

  • Be a first-time homebuyer
  • Meet income requirements (varies by household size)
  • Must purchase a home in Mobile city limits and use it as your primary residence
  • Attend pre-counseling and homebuyer training classes
  • Must be a U.S. citizen or green card holder

• Pros and cons
  

  Pros

  • Can be used on a single-family home, condo, duplex or modular home
  • Funds don’t need to be repaid (if you remain in the home for at least five years)

  Cons

  • Funds must be repaid if you sell the home within the first five years

City of Birmingham’s Ready to Own Program

Through this program, first-time and repeat buyers in Birmingham, Alabama can get up to $10,000 in assistance. The funds — which are provided in a five-year, zero-interest forgivable loan — can be used on a down payment, closing costs and an interest rate buydown.

• Requirements
  

  • Must have a credit score of 600 or higher
  • Household income can’t exceed 80 percent of the AMI (varies by household size)
  • Must purchase a property within Birmingham city limits
  • Must complete a homebuyer education course
  • Must have a signed purchase agreement to receive the funds

• Pros and cons
  

  Pros

  • Doesn’t require repayment (as long as you stick to the program guidelines)
  • Can qualify with a credit score as low as 600
  • Open to first-time and repeat homebuyers

  Cons

  • If the property is no longer your primary residence in the first five years, repayment is required

Other Alabama first-time homebuyer loans

Try researching federal home loan programs designed to help qualified individuals who may have lower credit scores or smaller budgets for a down payment but still need access to favorable rates and terms. These include:

• FHA loans: Even with a credit score of 580, you may still qualify for an FHA loan, and you only need to put 3.5 percent of the purchase price down.
• VA loans: For qualifying service members, veterans or eligible spouses, a VA loan is an option with big benefits: no down payment required, no minimum credit score to qualify, and competitive interest rates.
• USDA loans: USDA loans are worth investigating if you want to purchase a home in a rural area (look here to see if your property meets the metrics for this mortgage). Like VA loans, there is no down payment required, and you may only need a credit score of 640 to qualify with USDA-approved lenders.

You can also ask your mortgage lender about other home loan and assistance options that might be available.

Get started

If you’re ready to begin your Alabama homebuying journey, here’s how to get started:

1. Explore the list of approved Alabama Housing Finance Authority mortgage lenders. Keep in mind that while AHFA doesn’t offer mortgages directly, the agency works with almost 100 lending institutions across the state.
2. Shop around and compare loan offers from several lenders to find the most competitive option.
3. If you are a first-timer, visit Bankrate’s first-time homebuyer loans and programs guide for additional tips.

You can also prepare for homeownership in Alabama by:

Explore other first-time homebuyer programs by state

• Explore other first-time homebuyer programs by state