2025 Alabama First-Time Homebuyer Programs and Loans

Buying a home is never cheap, but it’s one of the surest routes to building wealth. In Alabama, many first-time buyers face financial hurdles, particularly Black residents, who encounter greater barriers to homeownership than other ethnic and racial groups.

Fortunately, several programs offer financial assistance to support first-time homebuyers in Alabama. These programs include low-cost loans for down payments, grants to cover closing costs, and monthly mortgage subsidies. This guide outlines the programs available to first-time buyers in Alabama and explains how to qualify.

First-time homebuyer programs in Alabama

Several state, city and nonprofit programs in Alabama offer financial assistance to first-time homebuyers. Exploring these options could save you thousands of dollars and help you buy a home sooner. Here are some of Alabama’s most popular first-time homebuyer programs to help you get started on your research.

• Alabama Housing Finance Authority’s Step Up Mortgage: Good option for moderate-income first-time buyers with good credit
• Alabama Housing Finance Authority’s Affordable Income Subsidy Grant: Good option for low-income first-time homebuyers
• Montgomery Housing Authority Homeownership Program: Good option for existing Montgomery Housing Choice Voucher program participants
• City of Mobile’s Down Payment Assistance Program: Good option for first-time homebuyers in Mobile, Ala.
• City of Huntsville’s Down Payment Assistance Program: Good option for first-time homebuyers in Huntsville, Ala.

Alabama Housing Finance Authority’s Step Up Mortgage

The Alabama Housing Finance Authority (AHFA) supports first-time homebuyers through its Step Up program, which has helped approximately 22,000 families afford a mortgage since its inception in 2000. The program offers a two-part loan: a 30-year fixed-rate mortgage and a 10-year second mortgage that covers 4% of the home’s purchase price (up to $10,000) as down payment assistance. You make a single monthly payment for both loans, with payments decreasing after you repay the second mortgage in 10 years or less. AHFA partners with multiple lenders to make this program accessible throughout Alabama.

Requirements

• Minimum credit score of 640
• Debt-to-income (DTI) ratio of 45% or lower
• Household income of $159,200 or less
• Must occupy the home as principal residence within 60 days of closing
• Complete homebuyer education course

Pros and cons

Alabama Housing Finance Authority’s Affordable Income Subsidy Grant

The AHFA’s Affordable Income Subsidy Grant helps lower-income borrowers cover closing costs and can be used alongside the AHFA’s Step Up loans. Buyers earning up to 50% of their area’s median income (as defined by Freddie Mac) may receive a grant of up to 1% of their loan amount, while those earning between 51% and 80% of the median income qualify for a reduced grant of up to 0.5%. This assistance helps make homeownership more accessible by lowering upfront expenses.

Requirements

• Minimum credit score of 640
• DTI ratio of 45% or lower
• Household income below 80% of the area’s median
• Complete homebuyer education course

Pros and cons

Montgomery Housing Authority Homeownership Program

The Montgomery Housing Authority (MHA)’s Homeownership Program helps existing Housing Choice Voucher (HCV) program participants transition from renting to homeownership.

The HCV program (formerly known as Section 8) is a federally funded rental assistance program for low-income families, the elderly and disabled individuals. The program pays a subsidy directly to the landlord on behalf of the tenant to help them afford housing.

The exact amount and nature of support from MHA’s homeownership program aren’t clear from its website, but participants receive a voucher that reduces mortgage costs for up to 15 years if the mortgage term is 20 years or more, or 10 years if the mortgage term is 15 years or less. Seniors and disabled first-time homebuyers benefit from relaxed eligibility requirements and extended financial support.

Requirements

• Minimum credit score of 620
• Employed full-time for at least one year
• Contribute at least $2,000 of your own funds to cover inspections, earnest money and other closing costs
• Purchase a home within the MHA jurisdiction
• Complete homebuyer education course

Pros and cons

City of Mobile’s Downpayment Assistance Program

The city of Mobile offers a Downpayment Assistance Program, which provides up to $15,000 toward down payment and closing costs for low-income buyers purchasing a home within the city. Program participants do not have to repay the down payment assistance if they remain in the home for at least five years. If you’re buying a new home in a city-sponsored development, you may also qualify for a second mortgage to make the home more affordable. However, the program webpage doesn’t fully explain how this works.

Requirements

• U.S. citizen or green card holder
• Home must be located within Mobile city limits
• Annual household income of $42,600 to $80,300, depending on family size
• Complete pre-purchase counseling and homebuyer education course
• Property must pass Housing Quality Standards (HQS) inspection to meet minimum health and safety standards

Pros and cons

City of Huntsville Down Payment Assistance Program

The city of Huntsville offers a Down Payment Assistance Program in partnership with approved local lenders to provide first-time homebuyers up to $10,000 in down payment and closing cost assistance. The down payment assistance (DPA) comes in the form of a 0% interest second mortgage with no monthly payments. The lender forgives 20% of the loan each year, and participants do not have to repay the grant as long as they stay in the home for at least five years.

Requirements

• Meet maximum income limits based on family household size
• Complete pre-purchase counseling and homebuyer education course
• Home must be within Huntsville city limits
• Contribute at least $500 of your own funds for closing costs
• Maximum purchase price of $185,000 for existing construction or $243,000 for newly constructed homes

Pros and cons

Alabama first-time homebuyer qualifications

Each first-time homebuyer program has its own eligibility requirements, so it’s important to review them carefully before applying. Researching your options takes time, but it could be well worth the effort.

Steps to apply for a first-time homebuyer program

Most programs follow a similar application process. Here’s how to prepare:

1. Check your credit score. Many first-time homebuyer programs require good credit — typically a score of 670 or above. In 2024, the average credit score in Alabama was 692, according to Experian. If your score is below that threshold, review your credit report for errors and take steps to improve your credit score before applying.
2. Calculate your income. Many programs have income limits. Add up all your sources of income, including wages, freelance or gig work, investment returns, child support and any other paid work.
3. Assess your savings. While assistance programs provide some financial support, most won’t cover all the costs of buying a home — including moving expenses and home furnishings. Make sure you have enough savings to cover the remaining expenses.
4. Review your budget. Owning a home includes ongoing costs like utilities, insurance, property taxes and maintenance. Make sure your budget can accommodate your mortgage payment, along with other debt payments and homeownership expenses.
5. Complete a first-time homebuyer course. Many programs require an approved homebuyer education course. Wait to enroll until you confirm which course your selected program requires.
6. Review program-specific requirements. Some programs mandate working with approved lenders or purchasing a home within a designated time frame. Contact a program representative to understand the requirements before you apply for mortgage preapproval. An experienced real estate agent can help you find a qualifying property within the required time frame.

Understanding Alabama first-time homebuyer down payment assistance

Out of the 20 DPA programs in Alabama, 90% had available funding as of the fourth quarter of 2024, according to Down Payment Resource’s homeownership program index.

First-time homebuyer programs in Alabama provide financial aid in various forms. Some programs require repayment, while others are essentially free, depending on the program terms.

Deferred second mortgage

Requires repayment? Yes

This second mortgage is an additional loan recorded as a lien on your home alongside your primary mortgage. Many assistance programs use this structure but defer payments, meaning you won’t need to start repaying the second mortgage immediately.

Forgivable second mortgage

Requires repayment? No

Some programs forgive the second mortgage balance if you remain in the home for a set period of time — typically five years. Once forgiven, the loan effectively becomes a grant.

Grant

Requires repayment? No

Unlike loans, grants don’t require repayment as long as you comply with the program rules. These are typically harder to qualify for and often target first-time homebuyers with the greatest financial need, such as seniors or individuals with disabilities.

Mortgage credit certificate (MCC)

Requires repayment? No

The AHFA offers mortgage credit certificates to help reduce barriers to homeownership. This program provides tax credits and deductions that can lower your overall tax burden and increase your buying power. You may be able to combine an MCC with the Step Up mortgage program and the Affordable Income Subsidy Grant for additional financial support.

Keep these things in mind about DPA programs

Make sure you know the exact program requirements before accepting down payment assistance. For example, you may need to repay any down payment funds that would otherwise be forgiven if you sell your home or refinance your mortgage within a set amount of time. To avoid making a costly and preventable mistake, understand the requirements and keep these details in a convenient place.

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

According to LendingTree’s most recent study of first-time homebuyers, the average down payment for first-time homebuyers in Alabama was $22,122 in 2023. This was among the lowest in the country, with only a handful of states having smaller down payments.

Can I qualify for down payment assistance in Alabama?

It depends. Every first-time homebuyer program has different requirements. Most down payment assistance programs are available to individuals or families with good credit who earn at or below the area’s median household income.

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

Contact the department offering the first-time homebuyer program or a partner lender for application requirements. You may be able to apply with a lender of your choice, or the program may require you to work with one of its 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 loans are home mortgages offered by many lenders that are not backed by any specific government entity, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA). While it may be harder to qualify for these loans, they may cost less than government-backed loans, which are usually easier for first-time homebuyers to obtain.

FHA loans

FHA loans are an attractive option for many first-time homebuyers because they have lower minimum credit score requirements and often offer lower rates. You can purchase a home with as little as 3.5% down on an FHA loan. However, you have to pay for mortgage insurance, which reduces the amount of home you can afford.

VA loans

Current and former military members may qualify for a VA loan with no down payment and low interest rates. However, making a larger down payment — even as a first-time homebuyer or veteran — can help lower your monthly payments and decrease your overall loan costs.

USDA loans

Alabama residents living in rural areas may qualify for a USDA loan. These mortgages allow you to buy a home with no money down if you’re willing to take on the risk of buying without equity.

What are the best first-time homebuyer loans?

Many state and local housing agencies offer specialized loans for first-time buyers who meet specific criteria. However, many first-time homebuyers secure financing through more traditional options. It’s important to compare these common loan types with those available through first-time homebuyer programs, as they may be better suited to your financial situation and long-term goals.

Home price trends in Alabama’s major areas

Home prices in most of Alabama are increasing slightly faster than the national average, according to the Federal Housing Finance Agency (FHFA). Statewide, average home prices rose 4.78% between 2023 and 2024, compared to the national average growth of 4.51%.

Prices in the capital city of Montgomery and Alabama’s largest metro area, Birmingham-Hoover, are rising even faster. Home prices in Montgomery rose 9.2% between 2023 and 2024, while prices in Birmingham increased 4.82% over the same period. Huntsville, Alabama’s second-largest city, saw home prices rise 6.65%.

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

There was a federal first-time homebuyer tax credit, but it expired in 2010. However, the AHFA offers a mortgage credit certificate program for qualifying first-time homebuyers in Alabama, allowing them to claim tax credits on their federal tax returns.

What are the current mortgage rate trends in Alabama?

Fixed-rate mortgage rates in Alabama followed a similar trend as national rates, slowly trending downward over the past year. Now, expert mortgage rate predictions from LendingTree forecast that interest rates will remain at or above 6% throughout 2025.