First-Time Homebuyer Programs in Alabama

The down payment on a new home is often the biggest hurdle for first-time homebuyers. In Alabama, where the average home value is $227,873, you would need a down payment of $45,575 to avoid private mortgage insurance.

Fortunately, there are first-time homebuyer programs available in Alabama to help you achieve homeownership. There are also mortgages that allow first-time homebuyers to put less down on a home, but these usually have income requirements and require mortgage insurance. MoneyGeek explores several state-specific and government-backed first-time homebuyer programs for people from different financial backgrounds.

Alabama First-Time Homebuyer Programs

Alabama provides grants and loans to help first-time homebuyers cover both down payment and closing costs. We compiled the first-time homebuyer programs offered by the Alabama Housing Finance Authority (AHFA) to help you find the best option for your particular needs and situation.

First Step Mortgage Revenue Bonds

The First Step Mortgage Revenue Bonds program offers 30-year fixed-rate mortgages with below-market interest rates for first-time or repeat homebuyers in Alabama. Borrowers can access loans through FHA, VA, USDA and Freddie Mac's HFA Advantage, with down payment assistance up to $10,000 or 4% of the home's sales price. The down payment assistance is structured as a 10-year second mortgage.

tax icon
ELIGIBILITY REQUIREMENTS

To qualify for the name under the First Step Mortgage Revenue Bonds program, you must meet specific eligibility requirements. Below are the criteria you need to fulfill:

  • Meet federally established sales price and income limits based on their area's median income
  • Meet standards for creditworthiness
  • Live in the property (not for business or rental purposes)
  • Apply through an AHFA participating lender

Step Up

The Step Up program provides homebuyers in Alabama with down payment assistance of up to 4% of the sales price, capped at $10,000. The program is paired with a 30-year fixed-rate first mortgage and requires a second 10-year mortgage for the down payment assistance.

house icon
ELIGIBILITY REQUIREMENTS

To qualify for the Step Up program, you must meet specific eligibility requirements. Here are the criteria you need to fulfill:

  • Have an income limit of $159,200 or less
  • Have a minimum credit score of 640
  • Have a debt-to-income ratio under 45%
  • Complete a homeownership education course
  • Loan must be FHA, VA, USDA, or HFA Advantage
  • Apply through a participating lender

Affordable Income Subsidy Grant

The Affordable Income Subsidy Grant offers Alabama homebuyers closing cost assistance based on their income. Borrowers with an income at or below 50% of the Area Median Income (AMI) can receive a grant equal to 1% of the loan amount, while those with an income at or below 80% of the AMI are eligible for a grant equal to 0.5% of the loan amount.
The grant is only available for HFA Advantage conventional loans and can be applied to both new and existing homes in Alabama.

house2 icon
ELIGIBILITY REQUIREMENTS

To qualify for the Affordable Income Subsidy Grant, you must meet specific eligibility requirements. These criteria ensure that the program assists those who need it the most. Below are the eligibility requirements:

  • Have an income at or below 80% of the Area Median Income (AMI)
  • Have an HFA Advantage conventional loan
  • Have a minimum credit score of 640
  • Have a debt-to-income ratio of 45% or lower
  • Complete a homeownership education course
  • Apply through a participating lender

Alabama Mortgage Credit Certificate (MCC)

The Mortgage Credit Certificate (MCC) program provides Alabama homebuyers with a federal tax credit for a portion of the annual mortgage interest paid. The credit rate varies based on the loan amount, offering a 50% credit for loans under $100,000, 30% for loans between $100,001 and $150,000, and 20% for loans over $150,001. The maximum credit is capped at $2,000 annually for loans under $150,000.

MCCs are available with fixed-rate conventional, FHA, VA and USDA loans. Applicants must meet federally established income and purchase price limits.

mortgage icon
ELIGIBILITY REQUIREMENTS

To qualify for the Alabama Mortgage Credit Certificate (MCC), you must meet specific eligibility requirements. These requirements are designed to ensure that the program benefits those who need it most. Below are the criteria you must fulfill:

  • Meet federal income and sales price limits
  • Purchase a primary residence in Alabama
  • Use a fixed-rate conventional, FHA, VA, or USDA loan
  • Apply through a participating lender

Alabama First-Time Homebuyer Programs by City

Aside from statewide first-time homebuyer programs in Alabama, city-specific programs are also available to help you pursue homeownership in a city of your choosing. Check out the table below for some of the cities in Alabama that provide first-time homebuyer programs for potential residents.

City
First-Time Homebuyer Program

Birmingham

The Ready to Own program in Birmingham, Alabama, offers homebuyer assistance of up to $10,000 for down payment, closing costs, and interest rate buydowns. This assistance comes as a five-year forgivable loan at 0% interest, provided the property is within Birmingham city limits. Eligibility requirements include a minimum credit score of 600, household income not exceeding 80% of the area median income (AMI), completion of a homeownership education course and a signed purchase agreement before fund reservation.

Huntsville

The Down Payment Assistance Program (DAP) in Huntsville, Alabama, offers up to $10,000 in down payment and closing costs to eligible first-time homebuyers. To qualify, applicants must meet eligibility requirements and reside primarily in the property for a minimum of five years.

Mobile

The First Time Home Buyers' Program in Mobile, Alabama, offers up to $15,000 in down payment and closing cost assistance. This financial aid is forgivable, provided that the applicant resides in the house for five years. Eligible participants must complete a pre-purchase homeowner counseling and education course. Additionally, the home must pass a Housing Quality Standards (HQS) inspection to ensure it meets HUD’s minimum health and safety standards.

Zero-Down-Payment Loan Programs in Alabama

In Alabama, zero-down-payment loan programs allow you to purchase a home without putting money down. USDA and VA loans are two government-backed options that offer no down payment.

USDA Loans

USDA loans are a financing option provided by the U.S. Department of Agriculture through its Rural Development Guaranteed Housing Loan program. These loans are designed to assist low-to-moderate-income buyers in rural areas, offering a path to homeownership with no down payment required.

USDA loans offer several benefits, including competitive interest rates and reduced mortgage insurance costs. They are specifically tailored for homebuyers who meet certain income and location criteria. The program aims to promote economic development in rural areas by making it easier for residents to purchase homes.

To qualify for USDA loans, your property must be 2,000 square feet or less and located in a USDA-eligible rural area with a population under 35,000. Additionally, you must meet specific income limits, which vary based on location. For instance, in Barbour County, AL, the limit is $52,900, while in Crenshaw County, AL, it is $59,100 for a four-person, low-income household. Understanding these criteria can help you determine your eligibility and take advantage of this beneficial program.

VA Loans

VA loans are a specialized mortgage option designed for veterans, active-duty service members, and eligible surviving spouses, issued by the U.S. Department of Veterans Affairs. These loans offer unique benefits and are specifically catered to those who have served in the military.

VA loans offer several advantages, including no-down payment requirements and no private mortgage insurance (PMI). They also feature lower interest rates compared to conventional loans. As of November 2024, the annual percentage rate (APR) for a 15-year fixed-rate VA loan in Alabama is 6.14%, while a 30-year fixed-rate loan is 6.31%.

To qualify for VA loans, you must meet specific eligibility requirements. These include your length of service or service commitment, duty status, and character of service. Additionally, you must meet certain income limits based on your location. A valid Certificate of Eligibility (COE) is also required to proceed with the loan application.

Low-Down-Payment Loan Programs in Alabama

First-time homebuyers in Alabama can take advantage of low-down-payment loan programs that allow them to finance their home with a down payment of 3.5% or less. These programs include conventional, FHA and FHA 203(k) loans.

    loans icon

    Conventional Loans

    Conventional loans are mortgage loans not insured by the government. There are two main types: conforming (which follows Freddie Mac or Fannie Mae guidelines) and nonconforming (which goes beyond the conforming limits).

    Depending on the lender, you can get a mortgage with a 3% down payment. However, putting down less than 20% means you'll have to pay for private mortgage insurance. Eligibility requirements include a minimum credit score of 620 and a debt-to-income ratio of 43% or lower.

    homeMortgage icon

    FHA Loans

    FHA loans adhere to Federal Housing Administration policies and procedures. For 2024, the mortgage limit for single-family properties in Texas is $766,550. For two-family properties, it's $981,500. Eligibility requirements include a minimum credit score of 500 and a 3.5% down payment. Note that private mortgage insurance is required if you put down less than 20%.

    paintingRoller icon

    FHA 203(k)

    FHA 203(k) loans allow you to roll the cost of renovations into the mortgage. There are two main types: Standard and Limited. You can obtain this mortgage with a 3.5% down payment. Eligibility requirements include a credit score between 500 and 580 and a front-end debt-to-income ratio of 31% or less. This loan is not limited to first-time homebuyers. Note that you can't have two FHA loans simultaneously.

FHA vs. Conventional Loan: Which Is Right for You?

FHA loans and conventional loans are often compared as they are the two most common types of mortgages. FHA loans require a minimum down payment of 3.5%, making them accessible for many homebuyers. In contrast, conventional loans can require as little as 3% down for first-time buyers. However, conventional loans typically have stricter credit score and debt-to-income ratio requirements, making them less accessible for those with lower credit scores.

As of November 2024, the current APR for a 15-year fixed-rate conforming loan in Alabama is 6.02%, while the APR for a 15-year fixed-rate FHA loan is 8.10%. APRs on FHA loans can be higher due to more fees and extra costs associated with government-backed loans.

Use our FHA vs. conventional loan calculator below to compare both mortgage programs and determine the best option for you.

FHA vs. Conventional Loan Calculator

Compare FHA and conventional mortgage programs to better understand your loan opportunities in Alabama.

Basic Details

Some basic details about the property and loan
$
$
%

Interest Rate

%
%
Calculation Results
Financial AnalysisFHAConventionalDifference
Monthly Payment (First Year)FHA$0Conventional$0Difference$0
Upfront Costs FHA$0Conventional$0Difference$0
Total 30-Year CostFHA$0Conventional$0Difference$0
Total 5-Year CostFHA$0Conventional$0Difference$0
Monthly Mortgage Insurance (First Year)FHA$0Conventional$0Difference$0
Down PaymentFHA$0Conventional$0Difference$0
Calculator results are rounded to the nearest whole dollar.
fairCredit icon
RECOMMENDED CREDIT SCORES FOR FIRST-TIME HOMEBUYERS

Qualifying for first-time homebuyer programs often involves meeting minimum credit score requirements, which can vary depending on the loan program. Conventional loans typically require a credit score of at least 620. In contrast, government-backed loans like FHA loans may only need a minimum credit score of 500.

In Alabama, the average credit score was 692 in the third quarter of 2023, according to Experian. This suggests that many residents in the state can qualify for these programs, as their average score surpasses the minimum requirements for both conventional and FHA loans.

FAQ: First-Time Homebuyer Programs in Alabama

We answered frequently asked questions about first-time homebuyer programs in Alabama to help you determine the best option and get closer to achieving homeownership.

Does Alabama have first-time homebuyer programs?
What qualifies me as a first-time homebuyer in Alabama?
Can you buy a house in Alabama with no down payment?
Who can help me with my down payment on a house in Alabama?

Additional Resources for First-Time Homebuyers in Alabama

Explore additional MoneyGeek resources for first-time homebuyers in Alabama to help you with the homebuying process.

About Zachary Romeo, CBCA


Zachary Romeo, CBCA headshot

Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production.

Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.


sources