Down Payment Assistance in Alabama, Explained Properly
Program and regulatory figures verified October 5, 2026. Details change; confirm your scenario with us.
Alabama's assistance is real and worth having. The way it gets described almost everywhere leaves out the part that shows up on your statement every month for ten years.
Does Alabama down payment assistance have to be paid back?
Yes, monthly, for ten years. This is the single most important fact on this page, and AHFA's own First Step FAQ puts the question to itself and answers it without hedging:
"Is the 2nd Mortgage forgivable? No. The AHFA 2nd mortgage is an amortizing loan with a monthly payment. The term is 10 years, and the interest rate is the same rate as the first mortgage."
Three words in there do the work. Amortizing means it pays down on a schedule like any mortgage. Monthly payment means it lands in your budget and in your debt ratio from day one. And the same rate as the first mortgage means it is not cheap money sitting quietly behind your loan.
It is still worth taking when you need it. It is not free. What that payment actually does to your file.
What does AHFA actually offer?
Three things, and only one of them is a grant.
| Programme | What you get | Repaid? | Income limit | Price limit |
|---|---|---|---|---|
| First Step | Below-market 30-yr fixed + 4% / $10,000 assistance | Yes, monthly | HUD county table | $566,355 / $692,211 |
| Step Up | 30-yr fixed + 4% / $10,000 assistance | Yes, monthly | $172,800 flat | None |
| Income Subsidy Grant | 1% or 0.5% of the loan toward closing costs | No — a grant | 80% AMI | — |
Both mortgages are serviced by ServiSolutions, a division of AHFA, so you write one cheque a month even though there are two loans. Each programme in full.
Why does the choice barely affect the money?
Because First Step and Step Up pay exactly the same assistance, through exactly the same 10-year amortizing second: 4% of the sales price, capped at $10,000.
So the useful question is not which programme pays more. It is which one will take your file — and there the two are nothing alike.
| First Step | Step Up | |
|---|---|---|
| Income limit, most counties | $89,500 (1–2 people, non-target) | $172,800 |
| Varies by household size? | Yes | No |
| Varies by county? | Yes | No |
| Sales price cap | $566,355 / $692,211 | None |
| First-time buyer required? | Yes, unless targeted area or veteran | No |
| What you get for it | Below-market bond rate | Market rate |
A household earning $150,000 in most of Alabama is far outside First Step and comfortably inside Step Up — and collects the same $10,000. The full comparison.
What is the one thing you never pay back?
The Affordable Income Subsidy Grant, and it runs in the opposite direction from Step Up. Where Step Up stretches to accommodate higher earners, the grant rewards lower ones: your income must be at or under 80% of the area median for the property's location.
- At or below 50% of AMI: a grant of 1% of the loan amount.
- 50.01–80% of AMI: a grant of 0.5% of the loan amount.
It is Freddie Mac HFA Advantage conventional only, it goes toward closing costs, and it stacks on top of First Step or Step Up. How to qualify for it.
The requirement AHFA's own page leaves out
Homebuyer education, on every AHFA programme. AHFA's consumer eligibility page lists it under Step Up and leaves it off the First Step list entirely. Its Lender Notice of 04.08.26 says the opposite: education is "required for all Alabama Housing Finance Authority (AHFA) programs," quoting the First Step Manual itself.
At least one borrower must finish an approved course before closing, with a certificate dated within one year of reservation. Miss it and the loan "may be subject to delays or ineligibility." What counts and how long it takes.
What are the limits?
Step Up is one number: $172,800, any household size, anywhere in Alabama, no price cap. First Step is a HUD table effective 6/24/2026, and the IRS sets its price caps at $566,355 outside targeted areas and $692,211 inside them.
Most of Alabama's 67 counties sit in the "All Other Counties" row at $89,500 for one to two people. Huntsville runs highest at $115,100. Your county's figures · Whether your address is targeted.
Frequently asked questions
Does Alabama down payment assistance have to be repaid?
Yes, with a monthly payment. AHFA's First Step Program FAQ states that the AHFA second mortgage is not forgivable, that it is an amortizing loan with a monthly payment, that the term is 10 years, and that the interest rate is the same rate as the first mortgage. The Affordable Income Subsidy Grant is the only AHFA money that is never repaid.How much down payment assistance can I get in Alabama?
First Step and Step Up both provide 4% of the sales price up to a maximum of $10,000, through the same 10-year amortizing second mortgage. Because 4% of $250,000 is $10,000, the percentage only governs below a $250,000 purchase price; at or above that the assistance is a flat $10,000.What is the income limit for Alabama down payment assistance?
Step Up allows $172,800, which AHFA states applies regardless of household size or location. First Step uses HUD county limits effective 6/24/2026, running from $89,500 for a one to two person household in a non-targeted area in most counties up to $161,140 for three or more people in a targeted area of Huntsville.Do I have to be a first-time buyer for Alabama down payment assistance?
Not for Step Up, which has no first-time buyer requirement. First Step requires that you have not owned a home in the previous three years, unless you are buying in a targeted area, where first-time and repeat buyers are both eligible, or unless you are a veteran using AHFA's veterans exemption.Mike Certo · NMLS #260555 · Cornerstone First Mortgage NMLS #173855 · Equal Housing Lender. Educational content about financing, not a loan commitment and not legal or tax advice. AHFA program terms, income limits and sales price limits are set by the Alabama Housing Finance Authority and change; figures here carry the date we verified them against AHFA's published documents. AHFA down payment assistance is an amortizing second mortgage with a monthly payment, not a grant. Federal recapture tax may apply on First Step bond loans; consult a tax advisor. Loans are subject to borrower and property qualification.