Alabama First-Time Home Buyer Programs of 2021

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By NerdWallet 
Alabama First-Time Home Buyer Programs of 2018

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If you're a first-time home buyer and Alabama is your sweet home, you’re in luck. National programs are available to make owning a first home more affordable. And since 1980, Alabama Housing Finance Authority, or AHFA, has helped thousands of families — many of them first-time home buyers — afford homes through its loan programs.

Here’s what to know about national and state programs available to Alabamians and what you need to qualify.

National first-time home buyer programs

These national mortgage programs may be used by first-time home buyers to make home-owning more affordable in any of the 50 states.

Conventional mortgage

Best for:

Low down payments, limited mortgage insurance premiums

What you need to know:

A conventional mortgage is a home loan that isn’t guaranteed or insured by the federal government. Conventional mortgages that conform to the requirements set forth by Fannie Mae and Freddie Mac allow down payments as low as 3% for first-time buyers or lower-income home buyers. Unlike FHA loans, conventional loans allow borrowers to eventually cancel their mortgage insurance or avoid mortgage insurance altogether if they put at least 20% down.

VA loans

Best for:

Military, low down payments

What you need to know:

The U.S. Department of Veterans Affairs helps service members, veterans and surviving spouses buy homes. VA loans are especially generous, providing competitive interest rates, often requiring no down payment or mortgage insurance. Although there is no official minimum credit score, most VA-approved lenders require scores of at least 640.

FHA loans

Best for:

Low credit score, low down payments

What you need to know:

This is the go-to program for many first-time home buyers with lower credit scores. The Federal Housing Administration allows down payments as low as 3.5% for those with credit scores of 580 or higher. The FHA will insure loans for borrowers with scores as low as 500 but requires a 10% down payment for a score that low. Mortgage insurance is required for the life of an FHA loan and cannot be canceled.

USDA loans

Best for:

Low down payments, rural

What you need to know:

A USDA home loan is a zero-down-payment mortgage for eligible rural and suburban home buyers. USDA loans are issued by the U.S. Department of Agriculture through the USDA Rural Development Guaranteed Housing Loan Program. There are income limitations, which vary by region. Applicants with credit scores of 640 or higher receive streamlined processing. Those with scores below that must meet more stringent underwriting standards.

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Alabama first-time home buyer programs

AHFA offers first-time and repeat home buyers affordable home loans for buying a new or existing home, but not for refinancing. Assistance programs reduce the need to save for down payments and closing costs. And Mortgage Credit Certificates can reduce your federal income tax bill.

AHFA highlights and eligibility requirements

HIGHLIGHTS

  • Up to 3.5% down payment assistance.

  • Grants to help low-income home buyers pay closing costs.

  • Federal tax credits available.

ELIGIBILITY

  • 640 minimum credit score.

  • Income and purchase-price limits apply.

  • Must complete a homeownership education course.

Alabama Step Up

Best for:

Down payment assistance

What you need to know:

Step Up helps eligible low- to moderate-income home buyers purchase a new or existing home with a 30-year, fixed-rate conventional or FHA mortgage. Your income must be under certain limits, regardless of household size or where in Alabama you buy the home. Features include up to 3.5% down payment assistance offered in the form of a 10-year second mortgage.

Alabama Affordable Income Subsidy Grant

Best for:

Closing cost assistance

What you need to know:

This grant program, designed to help home buyers with closing costs up to 1% percent of the loan amount, is limited to use with HFA conventional loans. Income and price limits apply, home buyers must have a minimum credit score of 640, and a homeownership education course is required. The grant can be combined with a Mortgage Credit Certificate.

Alabama Mortgage Credit Certificates

Best for:

Tax credits

What you need to know:

Mortgage Credit Certificates (MCCs) offer tax credits of 20% to 50% of mortgage interest, up to $2,000. MCCs are for home buyers with conventional, FHA, VA or USDA fixed-rate mortgages. Applications are first-come, first-served, and the credit can be used as long as you keep the original first mortgage. MCCs are reserved for homes that cost $294,601 or less, unless you buy in a target area, and then the maximum price is higher. MCCs may be combined with a Step Up loan or a 30-year, fixed-rate mortgage from a participating AFHA lender.

Your next step

If one of these state programs seems right for you, get started by reaching out to a participating lender. They can answer questions, identify target areas, calculate the assistance you can get and help you apply. After that, it’s time to get ready for your homebuying education course, a requirement for both Step Up and the Affordable Income Subsidy Grant, before the mortgage closes.

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