2024 Alabama First-Time Homebuyer Programs and Loans

Buying a home is never cheap, but it’s one of the surest routes to building wealth, and that’s as true in Alabama as anywhere else. Yet, buying a home in Alabama can be especially hard for many people, especially Black residents who struggle to afford homeownership costs at higher rates than any other racial/ethnic group.

Luckily, there are many financial assistance programs available to support first-time homebuyers in Alabama. These programs offer different types of assistance, such as low-cost loans to gather more down payment funds, grants for closing costs and even ongoing monthly mortgage subsidies. We’ll help you explore your options.

First-time homebuyer programs in Alabama

Different state, city and nonprofit groups offer first-time homebuyer assistance programs in Alabama. It’s worth spending some time researching your options because it could help you save thousands of dollars and take the leap into homeownership years sooner. To get you started, here are some of the largest and most popular programs:

• Alabama Housing Finance Authority’s Step Up Mortgage
• Alabama Housing Finance Authority’s Affordable Income Subsidy Grant
• Montgomery Housing Authority Homeownership Program
• City of Mobile’s First Time Home Buyers’ Program
• City of Huntsville’s Down Payment Assistance Program

Alabama Housing Finance Authority’s Step Up Mortgage

The Alabama Housing Finance Authority (AHFA) provided $176 million to nearly 1,000 families in 2023 through a combination of services, including the Step Up program. The AHFA partners with dozens of lenders to offer this as a two-part loan: a regular 30-year fixed mortgage, and a 10-year second mortgage. The second mortgage is actually your down payment assistance, and provides funding for 4% of your home’s purchase price, up to $10,000. You’ll make one single payment for both loans together, meaning that your monthly payment will get a lot cheaper after 10 years.

Requirements

• 640 minimum credit score
• 45% or lower debt-to-income ratio
• $159,200 and under household income
• Occupy home within 60 days of closing
• Homebuyer education course completion

Pros and cons

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Alabama Housing Finance Authority’s Affordable Income Subsidy Grant

The AHFA also offers a grant to help out with closing costs for lower-income borrowers, which can also be used with its Step Up loans. Borrowers earning below 50% of the median income for the area they’re buying a home in — as judged by Freddie Mac, which you can view here — are eligible for a grant of up to 1% of their loan amount. Borrowers earning between 50% and 80% of their new area median income are eligible for a reduced grant of up to 0.5% of the loan amount.

Requirements

• 640 minimum credit score
• 45% or lower debt-to-income ratio
• Household income below 80% of your area
• Homebuyer education course completion

Pros and cons

Montgomery Housing Authority Homeownership Program

The Montgomery Housing Authority (MHA) provides housing vouchers and public housing support within Alabama’s capital city. It also offers ongoing financial support for rental housing voucher recipients who are looking to transition into homeownership. The exact amount and nature of the support isn’t made clear on its website, but it will help make your mortgage cheaper for the duration of your loan. Seniors and disabled first-time homebuyers may also find it easier to qualify with relaxed requirements, as well as a longer term of financial support.

Requirements

• 620 minimum credit score
• Must be employed full-time over the past year
• $14,500 annual income required for at least one household member
• $2,000 minimum in savings for home purchase and homeownership costs
• Must currently be receiving assistance through the Housing Choice Voucher program
• Homebuyer education course and MHA Homeownership Orientation course completion

Pros and cons

City of Mobile’s First-Time Home Buyers’ Program

Low-income Mobile residents looking to purchase a property in the city may be able to get up to $10,000 toward the purchase of a home ($15,000 if it’s a “blighted” home). If you live there for at least the next five years, borrowers are not required to repay the loan. In addition, if you’re buying a new home in a city-sponsored development, you may receive “a second mortgage to make the home more affordable,” although it doesn’t fully explain how this works.

Requirements

• U.S. Citizen or green card recipient
• Home must be located within Mobile city limits
• Pre-purchase counseling and homebuyer education course completion
• Annual household income below $36,600 to $69,000, depending on family size

Pros and cons

City of Huntsville’s Down Payment Assistance Program

Huntsville’s city government doesn’t provide much information about its down payment assistance program. However, it seems to be structured similarly to Mobile’s, where you’ll receive a lump sum of funds that you can put toward a down payment or closing costs, and that won’t need to be repaid if you live in the home for at least five years.

Requirements

• Annual household income below HUD limits for Huntsville metro area

Pros and cons

Alabama first-time homebuyer qualifications

Each first-time homebuyer program works differently. You’ll need to spend some time sussing out the program requirements and how to apply, but it’s time well spent. If you spend 10 hours researching first-time homebuyer programs and can eventually qualify for a $10,000 grant, for example, that works out to an hourly rate of $1,000 saved per hour spent – not bad at all.

Steps to apply for a first-time homebuyer program

Most first-time homebuyer programs work in a similar way. Here’s how you can get prepared to apply:

1. Check your credit score. You’ll typically need good credit (the average Alabama resident has a 692 credit score, according to Experian). Make sure to check your credit report and credit score to make sure it’s accurate, and so you know whether you’ll qualify for any programs.
2. Calculate your income. Many first-time homebuyer programs are also limited to people earning above or below a certain amount. Tally up all your sources of income so you know where you stand.
3. Tally up your savings. First-time homebuyer programs can help you secure extra funds, but they won’t pay for everything on their own. Calculate how much you have in savings to boost your home-buying efforts.
4. Check your budget. Make sure you can afford homeownership costs, such as higher utility bills, insurance and setting aside money regularly for repairs. Some programs require you to stay in the home for five years, otherwise you’ll have to repay the funds.
5. Complete a first-time homebuyer course. You’ll typically need to complete a special course for first-time homebuyers. Wait until you know which program you’re applying for, because you may be required to take a specific course.
6. Consult program requirements. Some programs require you to apply for a loan with a specific mortgage lender or find a home to buy within a set period of time, for example. Make sure you contact the specific program you’re interested in to find out what’s required.

Understanding Alabama first-time homebuyer down payment assistance

First-time homebuyer programs generally fall into a few different categories in terms of how they work. You may have to repay the funds, or they may be free – it just depends on the type of program.

Deferred second mortgage

A second mortgage is debt that has a lien filed on your house along with your regular mortgage. Many first-time homebuyer programs actually take the form of these loans, although you may not need to make any payments on it right away like you do with your regular mortgage.

Forgivable second mortgage

Many Alabama first-time homebuyer programs will forgive your second mortgage balance if you live in the home for at least five years. In this case, the loan essentially becomes a grant.

Grant

First-time homebuyer grants don’t need to be repaid as long as you stay in compliance with the program requirements. Grants are often a bit harder to qualify for and are often reserved for people who need help the most, such as seniors or disabled people.

Mortgage credit certificate

The AHFA also helps first-time homebuyers in Alabama obtain a mortgage credit certificate (MCC), which can be paired with its Step Up mortgage program and its Affordable Income Subsidy Grant for a triple boost toward homeownership. The MCC offers tax credits and deductions that can bring the cost of homeownership down and may even help you qualify for a larger loan.

Keep these things in mind about DPA programs

Make sure you know the exact program requirements, and keep them in a handy place if you think you might forget. You may need to repay any down payment funds that would otherwise have been forgiven if you sell your home or refinance your mortgage within a set amount of time, for example — a costly and preventable mistake.

How much of a down payment do I need to buy a house in Alabama?

According to data from LendingTree’s most recent study of first-time homebuyers on its platform, in 2023, the average first-time homebuyer in Alabama had a $22,122 down payment. This was among the lowest in the country, with first-time homebuyers in only a handful of states coming to the closing table with an even smaller down payment in 2023.

Can I qualify for down payment assistance in Alabama?

It depends. Each Alabama first-time homebuyer program has different requirements. Typically, down payment assistance programs are available to families with good credit who are earning at or below the area’s median household income.

How do I apply for Alabama first-time homebuyer down payment assistance?

Reach out to the department offering the first-time homebuyer program for application requirements. You may need to apply with a lender of your own choosing, or they may have set application requirements for their partner lenders.

Here’s what you need to know about the process of applying for a home loan.

Other first-time homebuyer loan programs

Conventional loans

“Conventional mortgages” are home loans that are offered by a multitude of mortgage lenders, and that aren’t a part of any specific government programs like the ones listed below. They may be harder to qualify for but may cost less than FHA loans, which are often easier for first-time homebuyers to obtain.

FHA loans

You may be able to purchase a home with as little as 3.5% down or with a lower credit score, making FHA loans an attractive option for many first-time homebuyers. However, they often come with higher mortgage insurance costs which can decrease the amount of home you can buy.

VA loans

Current and former military members may qualify for a VA loan with no money down, although this can be a risky way to buy a home. Making as large of a down payment as possible — even if you’re a first-time homebuyer or veteran — will help keep your monthly payments lower and decrease overall loan costs, leaving more money left over for other things.

USDA loans

Alabama residents living outside of major metro areas may be able to qualify for a USDA loan. This loan also allows you to buy a home with no money down if you’re willing to take on the risk of buying without any equity, as with VA loans.

What are the best first-time homebuyer loans?

State and local housing agencies offer specially-designed loans for first-time homebuyers who meet certain requirements. However, most first-time homebuyers end up getting a mortgage the traditional way. It’s important to weigh these more common loans options as well, since some may be more well-suited for some first-time homebuyers than others:

Home price trends in Alabama’s major areas

Home prices in most of the state of Alabama are growing more slowly than the national average, inching up about 4.4% from 2022 to 2023 (compared to 6.5% in the rest of the country). However, home prices in Birmingham are rising on par with the rest of the country, while residents in the state capital of Montgomery are seeing the largest increases of all, surpassing even the nationwide average with an 8.4% increase year over year.

Is there a first-time homebuyer tax credit in Alabama?

There used to be a federal first-time homebuyer tax credit, however, that expired way back in 2010. The AHFA, however, does offer a mortgage credit certificate that many first-time Alabama homebuyers may be able to use to claim tax credits and even deductions on their federal tax return.

What are the current mortgage rate trends in Alabama?

Rates on a 5/1 adjustable-rate mortgage (ARM) have been largely steady from December 2023 to March 2024 in Alabama. Fixed-rate mortgage rates, however, started to climb in January before dropping in early March.