Alabama First-Time Home Buying Assistance Programs for 2024

Alabama First-Time Home Buying Guide

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    By Kenny Zhu

    (Last Updated – 03/2024)

    First-time buyers faced a 3.2% rise in home prices over the last year, but many of them will be able to find their sweet home in Alabama with assistance.

    The median home sales price in Alabama is $263,500 as of January 2024, according to RedFin. While those figures might sound discouraging to a first-time homebuyer in Alabama, tax credits and help with a down payment or closing costs are available for those who qualify.

    Who Is Considered a First-Time Homebuyer in Alabama?

    Let’s take this on first, because the answer is a little counterintuitive.

    A first-time homebuyer isn’t just anyone who has never owned a home. It’s anyone who hasn’t held an ownership interest in a primary residence over the past three years. Chances are if you’re buying a home, for the first time or the first time in recent memory, you’re going to need a home mortgage loan.

    Recommended: First-Time Homebuyer’s Guide

    3 Alabama Housing Programs for First-Time Homebuyers

    Alabama Housing Finance Authority programs are generally dedicated to low- to moderate-income homebuyers with decent credit who need help with a down payment or closing costs.

    Here are details about the AHFA’s main offerings.

    1. Step Up

    Step Up is the flagship homeownership program of Alabama Housing and is open to first-time and repeat homebuyers. It provides down payment assistance of up to 4% of the home’s sales price (up to $10,000) in the form of a second mortgage packaged with a 30-year, fixed-rate first mortgage.

    The down payment assistance is repayable over 10 years.

    The Step Up program features the following:

    •   HFA Advantage conventional, FHA, or VA loans

    •   Minimum credit score of 640 for incomes below 80% of area median income

    •   Minimum credit score of 680 for HFA Advantage loan borrowers with incomes above 80% of area median income but less than $159,200

    •   Debt-to-income (DTI) ratio of less than 45%

    •   Income cap is $159,200, regardless of household size or location

    •   Must complete a homeownership education course

    To apply, contact a participating lender .

    Email [email protected] to get help finding a lender in your area.

    2. Affordable Income Subsidy Grant

    In addition to Step Up, the Affordable Income Subsidy Grant provides lower-income HFA Advantage conventional loan borrowers with 0.50% to 1% of their total loan amount to assist with closing costs.

    The grant is available to both first-time and repeat homebuyers whose income is under 80% of the area median income for the property’s location.

    In addition:

    •   Homebuyers must have a credit score of 640 or higher

    •   DTI must be 45% or lower

    •   Must complete a homeownership education course

    A participating lender can advise you about the grant.

    3. Mortgage Credit Certificate

    The mortgage credit certificate allows borrowers to reduce their federal tax liability, dollar by dollar, by a percentage of their annual mortgage interest paid, up to $2,000, for the life of the loan. Any remaining interest can be claimed as an annual mortgage interest dedication.

    The certificate can be used with any 30-year fixed-rate amortizing mortgage offered by an AHFA participating lender. You must be a first-time homebuyer or buying a home in a targeted area.

    The home purchase price must be under $588,104 for targeted areas or under $481,176 for non-targeted areas.

    How to Apply to Alabama Programs for First-Time Homebuyers

    If you’re seeking AHFA homebuyer assistance, you’ll need to find a participating lender and verify whether you fall within the prescribed income and purchase price limits.

    The lender can guide you from there on.

    If you haven’t crunched some numbers to see how much house you might be able to afford, use a home affordability calculator to do the math.

    Recommended: Understanding the Different Types of Mortgage Loans

    Federal Programs for First-Time Homebuyers

    Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.

    The mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.

    Federal Housing Administration (FHA) Loans

    The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the FHA loan program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers, who typically need FICO® credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

    In addition to examining your credit score, lenders will look at your debt-to-income ratio (DTI, your monthly debt payments compared with your monthly gross income). FHA loans allow a DTI ratio of up to 50% in some cases, vs. a typical 45% maximum for a conventional loan.

    Gift money for the down payment is allowed from certain donors and will be documented in a gift letter for the mortgage.

    FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years. For a $300,000 mortgage balance, upfront MIP would be around $5,250 and monthly MIP, at a rate of 0.55%, would be around $137. You can learn more about these loans, including FHA loans for refinance and rehab of properties, by reading up on FHA requirements, loan limits, and rates.

    Freddie Mac Home Possible Mortgages

    Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.

    The Home Possible mortgage is for buyers who have a credit score of at least 660.

    Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.

    Fannie Mae HomeReady Mortgages

    Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.

    For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site .

    Fannie Mae Standard 97 LTV Loan

    The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.

    Department of Veterans Affairs (VA) Loans

    Active-duty members of the military, veterans, and eligible family members may apply for loans backed by the Department of Veterans Affairs. VA loans, which can be used to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. Most borrowers pay a one-time funding fee that can be rolled into the mortgage.

    Another benefit of VA loans is that they do not require private mortgage insurance (PMI) for borrowers who make a down payment of less than 20%. And they have more flexible credit score requirements. In some cases, even those who have previously been in foreclosure or bankruptcy can qualify.

    Borrowers applying for a VA loan will need a Certificate of Eligibility from the VA so make sure to review a guide to qualifying for a VA loan as a first step in the process.

    Native American Veteran Direct Loans (NADLs)

    Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. The VA requires no mortgage insurance, but it does charge a funding fee.

    US Department of Agriculture (USDA) Loans

    No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers pay an upfront guarantee fee and an annual fee that serves as mortgage insurance.

    The USDA also directly issues loans to low- and very low-income people. For loan basics and income and property eligibility, head to this USDA website .

    HUD Good Neighbor Next Door Program

    This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.

    Alabama First-Time Homebuyer Stats for 2024

    •   Percentage of buyers nationwide who are first-time buyers: 32%

    •   Median age of first-time homebuyers: 35

    •   Median home price in Alabama: $263,500

    •   Median gross rent: $913 per month

    •   69.7% of Alabama’s housing units were owner-occupied

    •   Average credit score in Alabama: 692

    Additional Financing Tips for First-Time Homebuyers

    In addition to federal and state government-sponsored lending programs, while you’re using a mortgage calculator to project mortgage payments, you might want to hone your knowledge about other financial strategies that may help you become a homeowner. Some examples:

    •  Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.

    •  Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.

    •  401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.

    •  State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.

    •  The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.

    •  Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.

    •  Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.

    The Takeaway

    First-time homebuyers in Alabama of modest means may be able to take advantage of attractive mortgage and down payment/closing cost programs. Other first-time buyers can hunt for a fitting home loan on their own.

    Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

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    Should I take first-time homebuyer classes?

    First-time homebuyer classes are required for many government-sponsored loan programs. And even if you aren’t required to take one, you might find it helpful. The homebuying experience is packed with jargon and technicalities and is one of the biggest financial milestones you’ll face.

    Do first-time homebuyers with bad credit qualify for homeownership assistance?

    Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores. And often, interest rates and other loan pricing are competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications.

    Is there a first-time homebuyer tax credit in Alabama?

    Yes. The Alabama Housing Finance Authority offers a mortgage credit certificate for eligible first-time homebuyers and buyers purchasing a home in a targeted area in Alabama. The certificate provides a dollar-for-dollar tax credit of up to 50% of annual mortgage interest paid, up to $2,000.

    Is there a first-time veteran homebuyer assistance program in Alabama?

    The Step Up down payment assistance program includes VA loans. Veterans need not be first-time homebuyers.

    What credit score do I need for first-time homebuyer assistance in Alabama?

    The minimum credit score requirement is 640, although for the Step Up HFA Advantage program at greater than 80% of area median income the requirement is 680.

    What is the average age of first-time homebuyers in Alabama?

    First-time homebuyers in the U.S. are an average of 35 years old.

    Photo credit: iStock/ghornephoto

    *SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

    ¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

    †Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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