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 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.

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.

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.

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.

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.

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.

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 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 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 December 2024, the annual percentage rate (APR) for a 15-year fixed-rate VA loan in Alabama is 6.05%, while a 30-year fixed-rate loan is 6.21%.

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.

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.

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 December 2024, the current APR for a 15-year fixed-rate conforming loan in Alabama is 5.89%, while the APR for a 15-year fixed-rate FHA loan is 8.09%. 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.

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.

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