Alabama first-time homebuyer grants and down payment assistance (2026)

First Step versus Step Up: which AHFA loan fits

First Step is funded with mortgage revenue bonds, so federal bond rules apply to it. You must meet income and sales price limits for your area. In a non-target area, you also must not have owned a home in the previous three years. In a target area, repeat buyers qualify ⁠⁴⁠⁷. Veterans and their spouses are exempt from the three-year rule unless the veteran already financed a home with bond money or was dishonorably discharged ⁠³. Only the income of the borrowers counts, and only people who sign both the note and the mortgage may hold title ⁠³. Because the loan is bond-financed, you may owe federal recapture tax if you sell within the first nine years, even if you refinance first ⁠³.

Step Up is for moderate-income buyers who can carry a mortgage but lack the down payment. It has no first-time buyer test and no area-based price table. Any borrower earning $172,800 or less qualifies, whatever the household size or location ⁠¹⁠⁴. Step Up carries a higher first-mortgage rate. For loans reserved on or after Sept. 30, 2026, the rates were ⁠⁹:

AHFA changes rates without notice. On Oct. 20, 2026, its homeownership page still showed these rates. Both are 30-year fixed loans ⁠²⁠⁹.

Both programs work with FHA, VA, USDA and Freddie Mac HFA Advantage conventional loans, on new or existing homes, and you must move in within 60 days of closing. Neither program covers a refinance ⁠⁴.

How the 10-year AHFA second mortgage is repaid

The help under both programs is the lesser of $10,000 or 4% of the sales price. On a $200,000 home that is $8,000. The cap of $10,000 applies at prices of $250,000 and up ⁠¹⁠². The money is a separate 10-year second mortgage. AHFA’s First Step FAQ says plainly that the second mortgage is not forgivable. It amortizes with a monthly payment over 10 years at the same interest rate as the first mortgage, and you sign a separate note and mortgage at closing ⁠³. ServiSolutions bills both loans together, so you write one payment each month ⁠¹.

This works differently from forgivable assistance in many other states. A buyer who takes the full $10,000 at 6.75% adds roughly $115 a month for ten years (our calculation from the FAQ terms, not an AHFA figure). You cannot get the second mortgage on its own. It must be reserved at the same time as an AHFA first mortgage, and First Step buyers may skip it and bring their own down payment ⁠³. AHFA sets no minimum cash investment from the buyer in any of its programs ⁠³. First Step charges a commitment fee of 0.50% of the loan for a 30-day reservation or 0.75% for 45 days, wired within 72 hours. The second mortgage has no commitment fee ⁠³. Step Up’s page does not publish the second mortgage’s rate separately. Ask your loan officer to show it on the Loan Estimate.

First Step’s 2026 income limits by area and target status

AHFA updated First Step limits for applications taken on or after June 24, 2026. HUD sets the income figures and the IRS sets the price caps ⁠⁵⁠⁶. Income limits depend on the metro area, household size and whether the home is in a target area:

Scroll the table sideways to see every column.

Source: AHFA income limits page ⁠⁵. The sales price limit is the same statewide: $692,211 in target areas and $566,355 in non-target areas, for new or existing homes ⁠⁶.

To find your column, enter the property address in AHFA’s Target Area Status Map. Blue means target, gray means non-target. If a tract is mixed, AHFA’s compliance staff make the call through a Target Map ID Request Form ⁠³⁠⁷. Target areas are qualified census tracts or areas designated as economically distressed. Some cover a whole county, others a single tract ⁠³.

The Affordable Income Subsidy Grant on HFA Advantage loans

The one true grant AHFA passes along comes from Freddie Mac. It is available only if your AHFA loan, First Step or Step Up, is a Freddie Mac HFA Advantage conventional loan. It pays closing costs on top of the second mortgage. Annual qualifying income must be at or below 80% of Freddie Mac’s area median income for the property’s county. Borrowers at or below 50% of AMI get a grant of 1% of the loan amount, and borrowers at 50.01% to 80% get 0.5% ⁠⁸. On a $190,000 loan, that is $1,900 or $950. The grant amount is confirmed in AHFA’s conditional commitment letter at final approval ⁠⁸. The same 640 score, 45% DTI, education course and participating lender rules apply ⁠⁸.

Credit, education and lender rules for every AHFA loan

Credit and debt. Both programs require a credit score of at least 640 and a debt-to-income ratio of 45% or lower ⁠⁴.

Homebuyer education. At least one borrower must finish an AHFA-approved homeownership course before closing. The certificate must be dated within one year of the loan reservation ⁠¹¹. AHFA accepts face-to-face counseling, approved online courses or the National Foundation for Credit Counseling’s Keys to Homeownership book ⁠¹¹. AHFA’s rules do not require a HUD-approved agency, but the city programs below generally do.

Participating lender. Only lenders on AHFA’s list can reserve funds in AHFA’s Lender Online system. As of Oct. 20, 2026, every lender listed was approved for both First Step and Step Up, from Regions, Renasant and ServisFirst to builder lenders such as DHI Mortgage and Lennar Mortgage ⁠¹². Email AHFA through the How Do I Apply? page if no lender near you is listed.

Alabama’s mortgage credit certificate ended in 2025

AHFA used to issue Mortgage Credit Certificates (MCCs), a federal tax credit on part of the yearly mortgage interest. AHFA set an Oct. 31, 2025 sunset for the program. It took no new reservations after that date, and certificates for existing commitments had to be issued by Dec. 31, 2025 ⁠¹⁰. AHFA said it hopes to relaunch the MCC if bond cap becomes available. As of Oct. 20, 2026, it had posted no relaunch notice. Websites that still list an Alabama MCC are out of date.

Birmingham, Huntsville and Mobile city programs

• Birmingham, Ready to Own Program. Up to $10,000 as a 5-year forgivable loan at 0%, with a restrictive covenant. The money can go to the down payment, closing costs or an interest rate buydown. The home must be inside Birmingham city limits. You need a 600 credit score, household income at or below HUD’s 80% of AMI limit, a homeownership course and a signed purchase agreement before funds are reserved. Neighborhood Housing Services handles intake, case management, education and closings. The page names SouthState, Regions, SouthPoint, First Horizon and BMO as partners ⁠¹³.
• Huntsville, Home Ownership Assistance Program (HOAP). Up to $24,999 or 10% of the purchase price for first-time buyers inside Huntsville city limits, sized to need. It can cover down payment, closing costs, a rate buydown or a principal paydown. It is a five-year deferred payment loan, and 20% is forgiven on each closing anniversary. You must live in the home for at least five years. The city’s page does not publish income limits. Apply through the city’s Neighborly portal, or call 256-427-5400 ⁠¹⁴.
• Mobile, Down Payment Assistance Program. Up to $15,000 for down payment and closing costs for first-time buyers in Mobile city limits. It is forgiven if you live in the home for five years. The program is HOME-funded. The flyer updated Sept. 17, 2026 lists household income limits of $45,650 for one person, $65,200 for four and $86,100 for eight, which it labels effective June 1, 2025. It also lists 2024 average home sales prices of $193,000 for an existing home and $274,000 for new construction. Buyers must take at least 8 hours of pre-purchase counseling through Consumer Credit Counseling Services of Mobile (251-602-0011) or Legal Services Alabama (251-433-6560 ext. 3429). The home must also pass a HUD Housing Quality Standards inspection ⁠¹⁵.

Montgomery’s community development website blocked our access on Oct. 20, 2026, and its archived June 2026 page lists no homebuyer program, so it is not covered here.

Getting an AHFA loan through a participating lender, step by step

1. Choose First Step or Step Up

   Use First Step for the lower rate if you are under your area’s income limit and either are a first-time buyer or are buying in a target area. Otherwise use Step Up, with its $172,800 income limit ⁠¹⁠⁴.

2. Check the address

   Run the property through the Target Area Status Map, then match it to the June 24, 2026 income table and sales price cap ⁠⁵⁠⁶⁠⁷.

3. Contact a participating lender

   Pick a lender from AHFA’s list. The loan officer runs your credit (640 minimum), calculates your DTI (45% maximum) and checks whether an HFA Advantage loan could add the Affordable Income Subsidy Grant ⁠⁸⁠¹².

4. Take the homebuyer course

   Get one borrower’s certificate dated within a year of the reservation. If you are also applying to Birmingham, Huntsville or Mobile, take a course that meets the city’s rules too ⁠¹¹⁠¹⁵.

5. Gather documents

   Expect pay stubs, W-2s or tax returns, and bank statements. For First Step in a non-target area, AHFA confirms first-time status from your loan application, credit report and a property-records report. Veterans claiming the exemption sign AHFA’s declaration form ⁠³.

6. Reserve the loan and second mortgage together

   Your lender locks both in Lender Online for 30 or 45 days. First Step requires the commitment fee to be wired within 72 hours ⁠³.

7. Close and record

   Sign the first mortgage, the second-mortgage note and mortgage, and for First Step the recorded tax-exempt rider. Keep the recapture notice for a future sale ⁠³.

If one lender declines you, another lender on the list may still approve you, and AHFA can point you to lenders in your area ⁠¹². Other states’ rules are on the first-time homebuyer grants page, and other Alabama guides are on the Alabama page.