Alabama First-Time Home Buyer: 2024 Programs and Grants

What to know about buying a house in Alabama

Home prices in Alabama and the rest of the country have been rising steeply in recent years. But first-time home buyers can take advantage of special homeownership programs to help them get into a house more easily.

If you’re eligible, Alabama offers loans to help you meet your down payment needs. There are also special mortgages, worthwhile income tax breaks, and home buyer education courses available. Ready to get started?

In this article (Skip to...)

• AL home buyer overview
• Home loan options
• AL home buyer programs
• First-time buyer grants
• Buying in Alabama’s cities
• Resources
• AL mortgage rates

Alabama home buyer overview

The median home listing price in Alabama was $271,900 in February 2024, according to Redfin. That rose 3.8% year-over-year.

Alabama home buyer stats

Down payment amounts are based on the state's most recently available average home sale price. “Minimum” down payment assumes 3% down on a conventional mortgage with a minimum credit score of 620.

If you're eligible for a VA loan (backed by the Department of Veterans Affairs) or a USDA loan (backed by the US Department of Agriculture), you may not need any down payment at all.

First-time home buyer loans in Alabama

If you’re a first-time home buyer in Alabama with a 20% down payment, you can get a conventional loan with a low interest rate. And you never have to pay for private mortgage insurance (PMI).

Of course, few first-time buyers have saved enough for 20% down. But the good news is that you don’t need that much. Not by a long shot. Borrowers can often get into a new home with as little as 3% or even 0% down using one of these low-down payment mortgage programs:

• Conventional 97: From Freddie Mac or Fannie Mae. 3% down payment and 620 minimum FICO score. You can usually stop paying mortgage insurance after a few years once you reach 20% home equity
• FHA loan: Backed by the Federal Housing Administration. 3.5% down and a 580 minimum credit score. But you’re on the hook for mortgage insurance premiums (MIP) until you refinance to a different type of mortgage, move, or pay off your loan
• VA loan: Only for veterans and service members. Zero down payment is required. Minimum credit score varies by lender but often 620. No ongoing mortgage insurance after closing. These are arguably the best mortgages available, so apply if you’re eligible
• USDA loan: For those on low-to-moderate incomes buying in designated rural areas. Zero down payment required. Credit score requirements vary by lender but often 640. Low mortgage insurance rates
• AHFA Step Up program: May include mortgage credit certificates, a competitive rate, and down payment assistance. More information below

Note that government loan programs (including FHA, VA, and USDA home loans) require you to buy a primary residence. That means you can’t use these loans for a vacation home or investment property.

In addition, most programs let you use gifted money or down payment assistance (DPA) to cover your down payment and closing costs. Depending on your mortgage loan, you could potentially get into a new house with minimal cash out of pocket.

If you’re unsure which program to choose for your first mortgage, your lender can help you find the right match based on your finances and home buying goals.

Alabama first-time home buyer programs

The Alabama Housing Finance Authority (AHFA)⁴ offers through its Step Up program a 30-year, fixed-rate mortgage to eligible first-time buyers. These loans, AHFA promises, come with a competitive mortgage interest rate and the possibility of down payment and closing cost assistance (more on that below).

Step Up can work with an FHA, VA, or HFA Advantage mortgage. To be eligible for Step Up, you must:

• Meet income limits. Your income should not exceed $130,600 a year or 80% of the area median income (AMI), depending on your loan type
• Have a credit score of 640 or better
• Get your loan through a participating lender
• Complete a homeownership education course
• Have a debt-to-income ratio (DTI) of 45% or lower
• Be a first-time buyer purchasing a new or existing home in Alabama
• Live in your new home as your principal residence, occupying it within 60 days of closing

To apply, pick an approved lender from the AHFA’s list and speak to a real estate agent. They should be helpful and talk you through your options.

Alabama first-time home buyer grants

The AHFA’s down payment assistance (DPA) program lets you borrow up to 4% of the purchase price of your new home or $10,000, whichever is less. But this is not a grant or forgivable loan. It’s a second mortgage, and you must repay it over 10 years in parallel with your first mortgage.

Your participating lender will help you make sure you can afford both loans. However, anyone who qualifies for and gets a Step Up mortgage should be eligible for this help.

Affordable Income Subsidy Grant

Those on particularly low incomes may qualify for an additional home-buying grant, which doesn’t have to be repaid. That’s either 1% or 0.5% of the loan amount, depending on your income. So it’s possible to get up to nearly 5% of your next home’s purchase price through the AHFA.

Mortgage Credit Certificate

The AHFA also offers Mortgage Credit Certificates (MCCs), which can reduce your federal tax burden by up to $2,000 a year. These tax credits can be valuable even if you take the standard deduction rather than itemize.

Buying a home in Alabama’s major cities

Count yourself lucky if you’re an Alabama first-time home buyer who wishes to buy in Birmingham or Montgomery, as they have some of the lowest average home prices in the state. Huntsville’s prices were more in line with the state average.

Birmingham first-time home buyers

The median list price of homes in Birmingham was $182,700 in February 2024. That jumped 26% year-over-year, according to Realtor.com.

If you want to buy a home at that median price, your down payment options might fall between:

• $5,481 for 3% down payment
• $36,540 for 20% down payment

The City of Birmingham appears not to offer down payment assistance. But you may be able to find help through the Neighborhood Housing Service of Birmingham’s NeighborhoodLIFT program.

Those on modest incomes may be eligible for up to $7,500, matching your savings dollar-for-dollar. This money takes the form of a three-year forgivable loan. Provided you stick by the rules and remain in residence, this debt will be forgiven at the end of the third year. For many, this may be a better deal than the AHFA’s repayable loan.

Huntsville first-time home buyers

The median list price of homes in Huntsville was $390,000 in February 2024. That fell 1.3% year-over-year, according to Realtor.com.

If you want to buy a home at that median price, your down payment options might fall between:

• $11,700 for 3% down payment
• $78,000 for 20% down payment

The City of Huntsville administers a down payment assistance program. Its website says, “The program provides up to $7,500 towards down payment and closing costs based on each homebuyer’s needs. Applicants must meet certain eligibility requirements and be prepared to commit to living primarily in the property for a minimum of five years.”⁵

The down payment assistance is recorded as a 0% interest second mortgage, with no monthly payments. If you live in the property for at least five years, the loan will be forgiven.

Get more details from the Community Development Office, 120 E. Holmes Avenue, Huntsville, AL 35801.

Montgomery first-time home buyers

The median list price of homes in Montgomery was $195,800 in February 2024. Prices shot up 15.2% year-over-year, according to Realtor.com.

If you want to buy a home at that median price, your down payment options might fall between:

• $5,874 for 3% down payment
• $39,160 for 20% down payment

We found no trace of a down payment or closing cost assistance program on the City of Montgomery’s website. However, first-time buyers can consider the statewide homeownership programs offered by AHFA.

Where to find home buying help in Alabama

In addition to our selection, the U.S. Department of Housing and Urban Development (HUD) provides lists of statewide, regional, and local home buyer resources in Alabama:

Statewide and regional Alabama first-time home buyer programs

• Housing Finance Authority: Low-interest loans and down-payment assistance to low and moderate-income homebuyers
• Habitat for Humanity: Habitat affiliates bring homeownership to very low-income families
• USDA Rural Development: Home buyer assistance programs that reduce the cost of homeownership for low and moderate-income families

Alabama affordable housing programs by city and county

• Birmingham Alabama City of Birmingham Dept. of Community Development: (205) 254-2483
• Decatur, Alabama City of Decatur Dept. of Community Development: (256) 351-7754
• Jefferson County Jefferson County Dept. of Community Development: (205) 325-5761
• Huntsville, Alabama City of Huntsville Dept. of Community Development: (256) 27-5400
• Mobile, Alabama Mobile Housing Board: (251) 434-2205
• Mobile County Alabama: (251) 330-1006
• Prichard Housing Authority: (251) 452-8500
• Montgomery, Alabama City of Montgomery Dept. of Community Development: (334) 241-2712

What are today's mortgage rates in Alabama?

You can see today’s live mortgage rates in Alabama here. Experiment with a mortgage calculator to see how down payment, interest rates, homeowners insurance, and property taxes will all affect your monthly mortgage payment.

When you’re ready to start the home buying process, get personalized rate quotes from at least three mortgage lenders. Don’t just look at advertised rates online. Apply for preapproval and compare the interest rates and fees you’re offered. That’s the only way to ensure you get the best deal on your new home loan.

¹Source: Redfin Alabama Housing Market report

²Source: Experian.com study of 2021 and 2020 data

³Based on a review of the state's available DPA grants at the time this was written

⁴Alabama Housing Finance Authority

⁵Source: Alabama Housing Finance Authority