Alabama is home to Gulf Coast beaches, scenic mountains, Civil Rights landmarks and NASA’s research center. If current real estate trends are any indication, homebuyers see a lot of appeal in what the state has to offer, fueling demand and driving price increases. In fact, Alabama’s median home sale price was up over 18 percent between February 2020 and February 2021, according to real estate brokerage Redfin.
For first-time homebuyers trying to keep up, there are programs available to make homeownership more affordable, including ones that come with a lower mortgage rate, looser lending requirements, down payment assistance and a tax break. These programs are overseen by the Alabama Housing Finance Authority.
Alabama first-time homebuyer loan programs
AHFA Step Up
First-time homebuyers can take advantage of the Alabama Housing Finance Authority’s (AHFA) Step Up program to obtain an affordable fixed-rate mortgage. Through the program, eligible homebuyers (first-time or repeat buyers) can get a 30-year conventional (HFA Advantage) or FHA loan at a competitive rate, along with down payment assistance. The requirements to participate in the program include:
- Property must be in Alabama
- Income can’t exceed $130,600
- Credit score must be 640 or higher
- Debt-to-income ratio must be 45 percent or lower
- 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 equal to 3.5 percent for an FHA loan and 3 percent for a conventional loan. The assistance funds are available through a 10-year second mortgage. You’ll be able to pay for both loans with a single payment each month. To qualify, you must be eligible for (and participating in) the Step Up first mortgage program.
AHFA Affordable Income Subsidy Grant
AHFA’s Affordable Income Subsidy Grant provides a grant of up to 1 percent of your mortgage to help you pay for closing costs. The grant is only available to those obtaining an HFA Advantage conventional loan, not an FHA loan. You can combine the grant with the Step Up down payment assistance, as well as 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 county where your home is located.
Other Alabama homebuyer assistance programs
Mortgage credit certificate (MCC)
In addition to a competitive mortgage rate and down payment assistance, AHFA also offers a mortgage credit certificate (MCC) to first-time homebuyers.
An MCC is a tax credit, and in Alabama equals as much as 30 percent or 50 percent of your mortgage interest, depending on the size of your loan, up to a $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.
- 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 first-time homebuyer loan programs
Along with state-level mortgage programs, first-time homebuyers in Alabama can leverage government-backed loans, such as FHA, VA and USDA mortgages, to get more favorable rates and terms. 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 Bankrate’s first-time homebuyer loans and programs guide.
For other Alabama homeownership programs, visit HUD.gov.
If you’re ready to begin your 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 for your situation.