With stunning Gulf Coast beaches, incredible food, and renowned college football, there’s no denying Alabama and its southern hospitality has its charms.
It’s no wonder getting on the property ladder is popular in this southern state: Home sales increased by 9 percent year-over-year with Birmingham, Huntsville, Mobile and Montgomery leading the way, according to 2020 data from the Alabama Center for Real Estate. The average sales price for a home also gained value by about 15 percent, making homeownership a wise investment in Alabama.
Are you a first-time homebuyer ready to make the move to sweet home Alabama? If so, there are plenty of state and local homeownership assistance programs to help Alabamians qualify for their dream home.
From state-wide mortgage credit certificates to city-specific grants and down payment assistance, here’s a look at what’s on offer and what you need to qualify.
Who Qualifies as a First-Time Homebuyer in Alabama?
For a quick clarification, a first-time homebuyer is defined as any family or individual who hasn’t owned a home within the last three to 10 years, depending on the region. Some programs, for example, suggest Alabamians can be eligible if they haven’t owned a home in the past three years while a state-wide program increases that threshold to a decade.
In any case, it’s worth reading the fine print and any limitations we list below. Some programs are only applicable once so if you’ve claimed this benefit, you won’t be able to do so again.
And for some good news: Some of the state and local programs described below aren’t restricted to first-time homebuyers! Instead, the priority is focused on helping Alabamians in low-income households with becoming homeowners.
Statewide Homeownership Assistance Programs
First-Time Homebuyer Savings Account
One of the initial steps in the homebuying process is saving up for a sizeable down payment. It isn’t an easy task, but first-time homebuyers can get some help by creating a tax-free savings account dedicated to the purchase of their first property.
Also called the First-Time Homebuyer and Second Chance Savings Account, the account can also be opened by homebuyers re-entering the housing market if they haven’t owned a home in the last 10 years.
Homebuyers can open an FHSA at any local bank, credit union or financial institution in Alabama. Their principal deposits and earnings will be deductible on their state income taxes to give them a little boost in their savings. The FHSA is a relatively new resource, just launched in 2019.
Neighborhood Housing Services
Interest rates, amortization, escrow accounts – the homeownership process can be difficult to navigate for first timers. This is why Neighborhood Housing Services offers free online and in-person classes to low- and middle-income new homebuyers across the state. The coursework addresses credit scores, shopping for a home loan, calculating mortgages and the hidden costs to homeownership to be aware of.
It might be worth your while – it’s estimated that borrowers who take on homebuyer education are almost 70 percent more likely to stay current on their mortgages.
Read more about the classes and how to register.
Statewide Non First-Time Homebuyer Programs
While the programs listed above are exclusive to first-time homebuyers, the Alabama Housing Finance Authority has a trio of state-wide assistance programs for first-time homeowners and repeat buyers moving up the property ladder. Created in 1980, the AHFA has helped more than 70,000 Alabamians purchase their new homes.
The AHFA’s programs include:
The Step Up program is a flagship AHFA program created to help low-income homebuyers who can afford a mortgage, but need help with paying for a down payment. If your household earns $97,300 or less, you can qualify for down payment assistance via a 10-year second mortgage at 3.5 percent interest that’s paid alongside your 30-year home mortgage. The loans are serviced by a division of AHFA so you’ll only have to write one check each month. You’ll need to complete a homebuyer education course to qualify, too.
The program applies to all new and existing homes in Alabama and for new and repeat homebuyers. Credit score and debt-to-income ratio restrictions apply so you can responsibly cover your monthly mortgage and down payment loan. You’ll also need to apply for your home loan through a participating lender.
For more information, visit the Step Up official website.
Affordable Income Subsidy Grant
Alongside the Step Up program, homebuyers financing their purchase with a Freddie Mac HFA Advantage loan can also apply for the AHFA Affordable Income Subsidy Grant to help with closing costs. Depending on your household income, you can receive a grant of up to one percent of your loan amount to help offset closing and other moving costs. This is a useful benefit as closing costs in Alabama average about $2,500.
Read more about the Affordable Income Subsidy Grant.
Mortgage Credit Certificate
The above programs can be combined with a Mortgage Credit Certificate, an AHFA tax credit which cuts the amount of federal income tax homebuyers need to pay each year. If homebuyers qualify, they can receive a federal tax credit of up to $2,000.
MCCs are available across the state and with all conventional fixed-rate, FHA, VA, USDA Rural Development, and privately insured mortgages. Borrowers can apply for a tax credit of up to 50 percent of their mortgage interest paid annually. The credit can be used each year for as long as you retain your original first mortgage, too.
Read more about the Mortgage Credit Certificate details.
Homebuyer Programs by Location in Alabama
Southern hospitality is weaved into Alabama’s real estate industry. Turns out, buyers in the 22nd state have several local resources available to help first-time homebuyers become homeowners. From grants of up to $10,000 to getting closing costs fully covered, here’s our list of homebuyer programs by location across Alabama.
First-time homebuyers looking for a house in Birmingham can take advantage of the NeighborhoodLIFT program put together by the Neighborhood Housing Services, Wells Fargo and NeighborWorks America. Birmingham is home to the largest real estate market in Alabama, with over 70 new home communities in this busy hub.
In a nutshell, homebuyers can apply for up to $7,500 in down payment assistance for qualified properties across the Jefferson and Shelby counties. The program isn’t limited to first-time buyers either!
Homebuyers need to be at or below income limits set in their county to be eligible, and need to apply via a participating lender. Visit NeigborhoodLIFT’s official website for more details and how to apply.
If you’re ready to call Decatur home, the River City’s HOME – or HomeOwnership Made Easier – program is worth getting familiar with. The program provides financial assistance to low-income households, putting up half of the minimum required down payment or the entire required closing costs.
Homebuyers must not have owned a home in the last three years, and they must have a loan approval in hand. You’ll also need to work with the program’s preferred list of mortgage providers. Read more about Decatur HOME.
Are you shopping for a new home Huntsville? The Rocket City runs a Down Payment Assistance Program to help first-time homebuyers with the initial step of saving up for their purchase. First-timers can receive up to $7,500 towards their down payment and closings costs. Your grant will be based on your income and financial need, and you’ll need to live in the home for a minimum of five years.
Huntsville also provides a Homeownership Program, providing newly built homes to qualifying low-income applicants. Read more about Huntsville’s Homeowner Programs.
First-time homebuyers looking for a property in Mobile can receive up to $10,000 in financial assistance to help with a down payment and eligible closing costs. Through the county’s Down Payment Assistance Program, first-time homebuyers who meet specific income limits can apply as long as they register and attend a pre-purchase counseling and homebuyer training class.
It’s worth noting the program applies to all homes, condominiums and manufactured homes within Mobile’s city limits. Other local programs don’t extend to mobile homes so this is a great perk for Alabamians thinking of buying a manufactured home. Check out Mobile’s official DPA site to read more.
Free money is for the taking for first-time homebuyers who want to purchase a property in Montgomery, Alabama’s capital city. First-time buyers can apply for a monthly mortgage subsidy through Montgomery Housing Authority’s Housing Choice Voucher program.
To qualify, homeowners must be employed on a full-time basis unless they’re seniors, meet certain criteria with their income, and they must complete a first-time homebuyers’ class.
Homeowners can receive the mortgage subsidy for up to 15 years if the mortgage is 20 years or more, and for up to 10 years if the mortgage is 15 years or less. Just how much you’ll receive in mortgage assistance varies depending on your circumstances.
Alabamians shopping for a new home in Opelika are offered a helping hand through the southeastern city’s Homebuyers Loan Program. It provides grants for up to 50 percent of lender required down payment and closing cost assistance (to a maximum of $6,000).
The program is available citywide to low- and middle-income families, with a preference to homebuyers in specifically targeted areas.
Homeowners need to stay in the home for at least five years after closing or they’ll have to repay the funding. Mobile homes are excluded from this program. Read more about Opelika’s Homebuyers Loan Program.
Want to buy a home in Prichard but don’t know where to start? The city’s Housing Authority is helping locals get acquainted with the homebuying process through a string of resources, including credit counseling, employment counseling, household budgeting, down payment assistance, and household maintenance training.
To access these training courses, first-time homebuyers need to show they have a stable source of income, steady employment, and a reliable credit history. You can learn more about the programs provided here.
In the wake of a 2011 tornado that destroyed parts of Tuscaloosa, Birmingham, and the smaller communities in between, the city of Tuscaloosa poured $500,000 into the rebuilding and revitalization of affected areas.
Via Tuscaloosa’s Homebuyers Assistance Program, locals who want to purchase a home in the designated recovery area can apply for a 0 percent interest forgivable loan of up to $10,000 to help with their down payment or closing costs. If homeowners check all the boxes for the program’s requirements, they don’t have to pay back the loan at all. The program also extends to homeowners whose homes were destroyed during the tornado.
Homeowners can’t apply if they received funding from the Small Business Administration or FEMA. Check out the program’s fact sheet and how to apply.
Help Buying a New Home in Alabama
Alabama has some of the country’s most affordable home prices, and one of the lowest cost of living indexes. For homebuyers looking at the bottom line, that’s a definite appeal.
You have your pick of new homes available across Alabama. Depending on where you narrow your scope, there are plenty of homeownership programs to help you get your foot into the (front) door.
The links on this site were researched by NewHomeSource. This is as cohesive a list as possible. Individual homebuyers should contact entities to fully understand requirements and processes.
Carmen Chai is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. For NewHomeSource, Carmen covers a variety of topics, including insurance, mortgages, and more.