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2022 Alabama First-Time Homebuyer Programs

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First-time homebuyer programs in Alabama help residents make their dreams of homeownership a reality. Assistance varies among the programs and includes low-interest loans, down payment grants and tax credits. While first-time homebuyer programs are designed to make homeownership more accessible, they typically come with specific eligibility requirements.

Familiarizing yourself with how these programs work and whether you qualify can be a helpful resource during your home search.

Alabama statewide and local first-time homebuyer programs

First-time homebuyer programs in Alabama are available at statewide and local levels. The Alabama Housing Finance Authority (AHFA) offers programs throughout the state, while local governments and community organizations partner with lenders to provide county- or city-wide programs.

Below is an overview of some of Alabama’s first-time homebuyer programs. For additional resources in your area, contact Alabama’s Department of Housing and Urban Development (HUD) office.

Program nameAssistance amountAssistance typeWhere it’s available
Step Up4% down payment assistance up to $10,00030-year, fixed-rate mortgage combined with a 10-year second mortgageAll counties
Affordable Income Subsidy Grant0.5% to 1% closing cost assistance, depending on incomeGrantAll counties
Mortgage Credit Certificate20%, 30% or 50% mortgage interest tax credit, depending on loan amountTax creditAll counties
FTHB Down Payment AssistanceUp to $10,000 down payment assistance0% interest second mortgageCity of Huntsville

What to know about different types of down payment assistance

Borrowers interested in down payment and closing cost assistance should familiarize themselves with the various forms of help.

  • Second mortgage. Some down payment assistance comes in the form of a second mortgage. In some instances, the borrower must make payments on the loan. In other cases, the second mortgage is forgivable and has no interest or payments. However, homeowners must live in the home for a set time to receive total forgiveness. If they sell or refinance the property before the required time, they’ll need to pay back a portion of the loan.
  • Grant. Borrowers don’t need to repay down payment assistance grants but will need to meet various eligibility requirements that could include living in the home for a certain amount of time. Typically, the income thresholds for these programs are lower than for other forms of assistance.

How Alabama first-time homebuyer programs work

The steps to apply for one of Alabama’s first-time homebuyer programs depend on the program and type of assistance. Here’s an overview.

1. Review income and credit requirements. Familiarize yourself with the income and credit requirements of the program you are interested in to make sure you qualify.

2. Find a lender. AHFA does not lend to borrowers directly. If you’re interested in one of their programs, you’ll work with a participating lender who will walk you through the application process.

3. Apply to local programs. The process for community or local programs varies. If you’re applying for down payment assistance only, you’ll work directly with the organization. However, if you’re combining the aid with a loan, you’ll apply through the program’s participating lenders.

4. Attend a homeownership education course. To qualify for down payment or closing cost assistance, you’ll need to attend a program-approved homebuyer education course.

5. Be aware of program guidelines. Some programs have requirements after you close on the home. For example, if applying to the FTHB Down Payment Assistance program, you’ll need to live in the house for five years to receive full loan forgiveness.

Alabama first-time homebuyer program requirements

First-time homebuyer programs are available to buyers who meet income, credit score and residency requirements. In addition to program guidelines, some lenders set their own qualifications, so be sure to check with your lender.

Program name Credit score minimumDTI ratio maximumMaximum income limitHow long you have to live in the home
Step Up640 or 680 (depending on income)45%$130,600N/A
Affordable Income Subsidy Grant64045%$16,250 to $66,320 (depending on county and family size)N/A
Mortgage Credit CertificateAs per loan program requirementsAs per loan program requirements$66,700 to $100,050 (depending on county and family size)N/A
FTHB Down Payment AssistanceAs per loan program requirements43% (47% in some cases)$46,450 to $87,550 (depending on family size)5 years for full forgiveness

THINGS YOU SHOULD KNOW

As noted above, first-time homebuyer programs often have income limits. HUD establishes these limits and bases them on the median income for a specific area. Before applying for a particular program, familiarize yourself with its income guidelines for your location and family size. You can find out the income limits in your area by entering your county in HUD’s income limit database.

National first-time homebuyer programs

In addition to Alabama’s first-time homebuyer programs, borrowers can access multiple national loan programs. While these mortgages are not all exclusive to first-time buyers, many have flexible credit requirements and low down payment minimums, which help make homeownership more accessible to new buyers. Some state and local first-time homebuyer programs often combine down payment assistance with one of these nationally available loans.

Conventional loans. Credit and down payment requirements are typically stricter for conventional (non-government) loans. However, a few conventional loan programs have low down payment minimums and flexible qualifications. Fannie Mae’s HomeReady® and Freddie Mac’s Home Possible® both have minimum down payment requirements of 3% and are available to low- and moderate-income borrowers, including non-first-time buyers. Freddie Mac’s HomeOne also has a 3% minimum down payment requirement and is open to all first-time buyers and those who haven’t owned a home in three years, regardless of income.

FHA loans. Loans guaranteed by the Federal Housing Administration (FHA) are popular among first-time buyers because of their low minimum down payments and lenient credit requirements. Borrowers can qualify for an FHA loan with only 3.5% down and a minimum credit score of 580. Homebuyers with a credit score between 500 and 579 can still be eligible for FHA loans with a 10% down payment. These loans carry ongoing mortgage insurance premiums in addition to an upfront mortgage insurance premium.

VA loans. Military personnel and eligible spouses can access loans guaranteed by the U.S. Department of Veterans Affairs (VA). These loans provide 100% financing with no program loan limits and flexible credit requirements. Borrowers won’t pay ongoing mortgage insurance as with other loan programs; however, VA loans carry an upfront funding fee.

USDA loans. Borrowers who live in designated rural areas may qualify for USDA loans. Guaranteed by the U.S. Department of Agriculture, these loans are available to low- and moderate-income borrowers and do not require a down payment. In addition to insuring loans, USDA has a direct lending program for low- and very low-income borrowers.

FAQs about Alabama’s first-time homebuyer programs

Who qualifies as a first-time homebuyer in Alabama?

For many homebuyer programs and loans, the term “first-time homebuyer” includes anyone who hasn’t owned a home in the past three years. That means previous homeowners who lost a home to foreclosure or haven’t owned a home in recent years due to other reasons can benefit from these programs. Some of the programs aimed at first-time homebuyers are also open to non-first-time buyers as long as they meet the requirements.

Can I qualify for down payment assistance in Alabama?

Homebuyers who meet income and credit requirements can qualify for down payment assistance. Keep in mind that approval for these programs is also subject to the availability of funds.

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

Buyers who qualify for VA or USDA loans can purchase a home with no money down. Other loan options, such as some conventional and FHA loans, have low down payment requirements — 3% and 3.5%, respectively. Additionally, eligible borrowers can combine down payment assistance with these loans to get 100% financing.

Home price trends in Alabama’s major areas

In 2021 home prices rose across the country, and Alabama was no exception. According to data from the National Association of Realtors, in the Huntsville area, median home prices increased 13% over the prior year to $232,307 in Madison County and $219,847 in Limestone County. The typical payment for a fixed-rate 30-year mortgage in those counties rose over $70 from a year ago, to $881 in Madison County and $834 in Limestone County.

In the Birmingham area, increases were more modest but still significant. Median home prices jumped 8.3% to $192,739 in Jefferson County and $260,311 in Shelby County. The typical mortgage payment increased by $36 in Jefferson County, to $731, and by $48 in Shelby County, to $988.

 

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