First Step Program: Down Payment Assistance in Alabama

First Step is a homebuyer assistance program for low- to moderate-income Alabama residents. The program provides two forms of support: reduced mortgage interest rates and up to $10,000 in down payment assistance. Together, these benefits lower both monthly housing costs and the upfront money needed to purchase a home.

First Step provides up to $10,000 in down payment assistance, capped at 4% of the home’s purchase price. This funding can cover your down payment, closing costs, or both, depending on your needs. The assistance is structured as a second mortgage with a 10-year term and carries the same interest rate as your first mortgage. You’ll make a single monthly payment that covers both loans.

Eligibility for the program requires meeting specific income, credit, and homebuyer status requirements.

Your household income must fall within limits set by AHFA based on your location and household size. Current income limits are available on AHFA’s website. You’ll need a minimum credit score of 640, and your total monthly debt obligations, including the new mortgage, cannot exceed 45% of your monthly income.

First-time homebuyer status requirements vary by location. In non-targeted areas, you must not have owned a home in the past three years. In targeted areas, previous homeownership does not disqualify you. Veterans may have additional flexibility regardless of location.

Additional eligibility requirements include:

• Must be at least 18 years old
• Must be a U.S. citizen or legal resident
• Property must serve as your primary residence
• Must complete a homebuyer education course before closing

First Step can be used for single-family houses and townhouses located in Alabama. The program works with multiple loan types, including FHA loans, VA loans, USDA loans, and Freddie Mac HFA Advantage conventional loans.

The program does not cover condominiums, manufactured homes, investment properties, or vacation homes. The property must be your primary residence.

Targeted vs. Non-Targeted Areas

Alabama designates certain communities as targeted areas where the government encourages homeownership. These areas offer more flexible eligibility requirements. AHFA’s website includes a tool to check whether a property is located in a targeted area.

The Second Mortgage

Down payment assistance comes as a second mortgage that you repay over 10 years at the same interest rate as your first mortgage. Your lender combines both into a single monthly payment. If you sell or refinance before the 10-year term ends, the remaining balance becomes due.

Federal Recapture Tax

Under specific conditions, you may need to repay part of the assistance when selling your home. This occurs when you sell within nine years, your income has increased substantially, and you make a profit on the sale. AHFA sends detailed recapture information after closing, though most participants don’t encounter this situation.

Homebuyer Education

One borrower on the loan must complete a homebuyer education course before closing. These courses address the buying process, home maintenance, and financial management. AHFA approves multiple courses, including online options that offer scheduling flexibility.

Amanda is a pharmacy technician in Foley, Alabama, who has been working at the same community pharmacy for five years. She’s ready to buy a $200,000 home but has struggled to save for a large down payment while managing student loans. Here’s how First Step changes her situation:

Without First Step:

• Market interest rate: 7%
• Monthly payment: approximately $1,331
• Down payment must be saved independently

With First Step:

• Interest rate: 5.25%
• Monthly payment: approximately $1,175
• Down payment assistance: up to $10,000
• Savings: $156 per month, $1,872 per year

When Amanda considers her options, the choice becomes clear. The reduced interest rate with First Step saves her more than $56,000 over a 30-year mortgage term.

1. Visit AHFA’s Website

Go to www.ahfa.com to review current income and price limits for your area and access program details.

2. Determine Targeted Area Status

Use AHFA’s online tool to check whether a property is in a targeted area, which affects eligibility requirements.

3. Connect with DSLD Mortgage

As an approved First Step lender, DSLD Mortgage can discuss your situation, verify your eligibility, and begin the application process. We’re familiar with the program requirements and can answer specific questions about your timeline and next steps.

4. Gather Your Documentation

Your loan officer will need information about your income, credit, employment, and the property you’re interested in purchasing.

For eligible Alabama residents, First Step removes significant financial barriers to homeownership. The program’s combination of reduced interest rates and down payment assistance makes purchasing a home more accessible for low- to moderate-income buyers.

DSLD Mortgage is an approved First Step lender. We’ve helped Alabama residents navigate this program and can guide you through each step. Contact us to discuss your situation, determine if you qualify, and begin the application process. We can help you navigate eligibility requirements, complete the necessary documentation, and coordinate with AHFA to secure your assistance.

For more information about First Step program details and current requirements, visit www.ahfa.com.

For the most current information about income limits, sales price limits, and interest rates, visit www.ahfa.com or contact a participating lender. This program is offered on a first-come, first-served basis, so don’t wait to explore your options.

AHFA is an equal opportunity provider. All information is subject to change based on available funding and federal regulations.