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 holding steady in this southern state, with the median sale price being $271,599 in December 2023, 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 loan, or VA loan at a competitive rate and down payment assistance. The requirements to participate in the program include:

• Property must be in Alabama
• 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

Alabama down payment assistance

AHFA Step Up down payment assistance

Along with the 30-year mortgage, AHFA’s Step Up program includes the option for down payment assistance of up to 4 percent or $10,000, whichever is less. The assistance funds are available through a 10-year second mortgage. You can pay for both loans with a single payment each month. You must be eligible for (and participating in) the Step Up first mortgage program to qualify.

AHFA Affordable Income Subsidy Grant

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

The requirements for the grant are the same as the Step Up program’s standards, but there are different income limits based on the county where your home is located.

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.

To qualify:

• You must be a first-time homebuyer, meaning you haven’t owned a home in the last three years.
• The property must be in Alabama.
• You must meet income limits and purchase price limits.

Other Alabama 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, Ala., you may be able to take advantage of its Down Payment Assistance grants to help first-time homeowners with down payments. These monetary awards can vary from up to $7,500 on an existing home or $10,000 for new construction. 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.

To qualify, you:

• 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% of AMI based on the household size
• Meet lender credit requirements (may vary)
• Take a homebuyer education course
• Reside in the home for five consecutive years to receive forgiveness

Decatur H.O.M.E

Low-income families can take advantage of financial assistance from the municipality of Decatur, Ala., if they meet the income thresholds if they purchase a home within the city limits. 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.

To qualify, you must:

• Not have owned a home in the last three years
• Have mortgage loan pre-approval
• Never have participated in the Decatur HOME program before
• Attend a housing counseling course
• Meet the income requirements

Down Payment Assistance Program Mobile, Alabama

Mobile, Ala., offers qualified home buyers assistance in the form of up to $10,000 in downpayment and closing costs or $15,000 of assistance if you purchase a “blighted” property within the city limits. You must be a U.S. citizen or a green card holder, meet income requirements, and intend to use the home as your primary residence. You must stay for a minimum of five years to avoid having to pay back any assistance. Income limits for families range from $36,600 to $69,000. In order 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.

To qualify, you must:

• Meet income requirements
• Attend pre-counseling and home buyer training classes

Other first-time homebuyer loan programs

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 have 3.5% of the purchase price down.

• VA loans: 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. For a comprehensive list of loans to consider, visit HUD.gov.

Get started

If you’re ready to begin your Alabama homebuying journey, an approved Alabama Housing Finance Authority mortgage lender can be a good starting point. Keep in mind that while AHFA doesn’t offer mortgages directly, the agency works with over 50 lending institutions across the state. It’s smart to shop around and compare loan offers from several lenders to find the most competitive option. If you are a first-timer, do visit Bankrate’s first-time homebuyer loans and programs guide for additional tips.