AHFA First Step Program

Capped at the lesser of $10,000 or 4% of the price, First Step's $10,000 second mortgage falls $1,375 short of the $11,375 FHA down payment at 3.5% on a $325,000 Huntsville home. That 10-year loan comes with a below-market first mortgage rate, so the buyer covers the $1,375 balance from savings while paying less interest on the main loan.

Closing costs in the Huntsville area are estimated at $6,500 to $10,000. After applying the down payment assistance, a buyer would still need approximately $7,875 to $11,375 in total cash at closing (the $1,375 down payment gap plus closing costs). Buyers using an HFA Advantage conventional loan instead of FHA only need 3% down ($9,750), meaning First Step's $10,000 covers the full down payment with $250 left over for closing costs.

For additional help, buyers using HFA Advantage loans can also receive the Affordable Income Subsidy Grant ($1,576 to $3,153 in closing cost assistance) and the Alabama Mortgage Credit Certificate (up to $2,000 annual tax credit). An FHLBA First Time Homebuyer Product ($17,500 forgivable loan) could also be paired with First Step for up to $27,500 in combined down payment and closing cost assistance.

First Step leaves the door open to AHFA's closing cost grant and its tax credit. Buyers who choose an HFA Advantage conventional loan can also receive the Affordable Income Subsidy Grant, which adds $1,576 to $3,153 in closing cost assistance as a grant with no repayment. The Alabama Mortgage Credit Certificate provides up to $2,000 per year in federal tax credits on top of the down payment assistance.

First Step cannot be combined with the AHFA Step Up Program because both are AHFA first mortgage programs with associated second mortgage down payment assistance. You must choose one or the other based on which offers better terms for your situation. First Step typically has a lower interest rate but county-specific income and price limits, while Step Up has a higher statewide income limit and no purchase price cap.

Outside AHFA, FHLBank Atlanta's programs are the main add-ons. The FHLBA First Time Homebuyer Product offers up to $17,500 as a forgivable loan, and the FHLBA Community Partners Product provides up to $20,000. Combining First Step ($10,000) with the FHLBA First Time Homebuyer Product ($17,500) creates up to $27,500 in total assistance, enough to cover the full down payment and most closing costs on a median-priced Alabama home.

The biggest advantage of the AHFA First Step Program is the below-market interest rate on the first mortgage. Because it is funded through tax-exempt bonds, First Step typically offers lower rates than what buyers would find through regular market channels or the AHFA Step Up Program. Over a 30-year mortgage, even a small rate reduction can save thousands of dollars. The program also pairs with HFA Advantage loans to qualify buyers for the Affordable Income Subsidy Grant, adding another layer of closing cost assistance that Step Up buyers using FHA or VA loans cannot access.

On the downside, First Step has county-specific income and purchase price limits established by the IRS, which are often lower than Step Up's statewide $172,800 cap. Buyers in higher-cost Alabama counties or those with incomes near the local cap may find they qualify for Step Up but not First Step. The first-time buyer requirement in non-targeted areas also limits eligibility for repeat purchasers. For buyers who qualify for both programs, comparing the First Step interest rate savings against Step Up's more flexible eligibility is worth discussing with an AHFA participating lender.