Alabama is home to Gulf Coast beaches, scenic mountains, historic towns and NASA’s research center. Home values are on the rise in this southern state, with prices increasing more than five percent in the last year, 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 housing market statistics
Median home sales price, as of Jan. 2025 (Redfin): $276,400
Median down payment, as of Dec. 2024 (ATTOM): $26,670
Most affordable counties, as of Dec. 2024 (ATTOM): Dallas, Macon, Perry, Sumter, Wilcox
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, VA or USDA loan at a competitive rate and down payment assistance (more on that below).
Requirements
Pros and cons
AHFA First Step
The AHFA First Step program is open to first-time and repeat homebuyers (in target areas) in Alabama. It provides below-market interest rates on 30-year FHA, VA, USDA and conventional (HFA Advantage) loans. Borrowers can also choose to receive down payment assistance.
Requirements
Pros and cons
Alabama down payment assistance and grants
AHFA Step Up and First Step down payment assistance
Along with the 30-year mortgages, AHFA’s Step Up and First Step programs include the option for down payment assistance of up to 4 percent of the purchase price or $10,000, whichever is less. The assistance funds are available through a 10-year second mortgage.
Pros and cons
AHFA Affordable Income Subsidy Grant
AHFA’s Affordable Income Subsidy Grant provides a grant to help with closing costs for people obtaining an HFA Advantage conventional loan. The amount equals .5 or 1 percent of your mortgage, depending on your income. You can combine the grant with the Step Up down payment assistance and a mortgage credit certificate to maximize your savings.
Pros and cons
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.
Pros and cons
City specific 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, Alabama, you may be able to take advantage of its Downpayment Assistance Program (DAP). This program helps first-time homeowners by providing up to $10,000 for down payment and closing costs. 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.
Requirements
Pros and cons
Decatur H.O.M.E
Low-income families can take advantage of financial assistance from the municipality of Decatur, Alabama. 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.
Requirements
Pros and cons
City of Mobile’s First Time Home Buyers’ Program
Mobile, Alabama offers qualified homebuyers assistance of up to $15,000 to put toward a down payment and closing costs. You must stay for a minimum of five years to avoid having to pay back any assistance. 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.
Requirements
Pros and cons
City of Birmingham’s Ready to Own Program
Through this program, first-time and repeat buyers in Birmingham, Alabama can get up to $10,000 in assistance. The funds — which are provided in a five-year, zero-interest forgivable loan — can be used on a down payment, closing costs and an interest rate buydown.
Requirements
Pros and cons
Other Alabama first-time homebuyer loans
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 put 3.5 percent of the purchase price down.
VA loans: For 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.
Get started
If you’re ready to begin your Alabama homebuying journey, here’s how to get started:
Explore the list of approved Alabama Housing Finance Authority mortgage lenders. Keep in mind that while AHFA doesn’t offer mortgages directly, the agency works with almost 100 lending institutions across the state.
Shop around and compare loan offers from several lenders to find the most competitive option.
If you are a first-timer, visit Bankrate’s first-time homebuyer loans and programs guide for additional tips.
You can also prepare for homeownership in Alabama by:
Explore other first-time homebuyer programs by state
Explore other first-time homebuyer programs by state
