AHFA First Step: Alabama's Below-Market Mortgage Rate Program

What Is the AHFA First Step Program?

The AHFA First Step program is the Alabama Housing Finance Authority's Mortgage Revenue Bond (MRB) mortgage program. It provides eligible Alabama homebuyers with a 30-year fixed-rate mortgage at a below-market interest rate. Unlike the AHFA Step Up program, which reduces the cash you need at closing through down payment assistance, First Step reduces your ongoing monthly payment by lowering your interest rate.

First Step has helped nearly 50,000 Alabama households since its inception, according to AHFA. The program is offered through participating AHFA-approved lenders across the state - not directly through AHFA.

How Mortgage Revenue Bonds Lower Your Rate

Mortgage Revenue Bonds are tax-exempt bonds issued by state housing finance agencies like AHFA under the authority of IRS Section 143. Because the bond interest is exempt from federal income tax, investors accept a lower yield than they would on taxable bonds. AHFA passes those savings to borrowers in the form of interest rates below what is typically available on the open market through conventional mortgage channels.

The rate difference varies by market conditions. Your participating lender can quote you the current First Step rate alongside market alternatives so you can compare the real monthly payment difference.

First Step Income Limits by Area

Unlike the AHFA Step Up program - which has a single statewide income limit of $172,800 - First Step income limits vary by metropolitan area and household size. Limits are also higher in target areas (specific census tracts designated under IRS Section 143) versus non-target areas.

The table below reflects income limits effective June 2, 2025 per AHFA. Verify current limits directly with a participating lender or at the AHFA First Step income limits page before applying, as limits are updated periodically.

Source: AHFA First Step Income Limits, effective June 2, 2025. Verify current figures with a participating lender.

Target vs. Non-Target Areas

Target areas are specific census tracts designated by the IRS under Section 143, typically areas identified for economic development. Borrowers purchasing in a target area are eligible for higher income limits than borrowers in non-target areas. As shown in the table above, the target area income limits can be 20% higher or more than the non-target limits for the same MSA.

Target area status is determined by the property's census tract, not the borrower's address. Your participating AHFA lender can run the specific property address to determine whether it qualifies for target area limits before you make an offer.

AHFA First Step Eligibility Requirements

• Income: Household income within the applicable MSA limit (see table above) - limits vary by area and household size
• Credit score: Minimum 640 across all qualifying loan types
• Debt-to-income ratio: 45% or lower
• Property: New or existing home in Alabama
• Homebuyer education: Completion of an approved homebuyer education course required
• Lender: Must apply through a participating AHFA-approved lender

First Step purchase price caps may apply based on the property's target or non-target area designation. Confirm current purchase price limits directly with a participating AHFA lender, as these figures change periodically and should not be relied on from secondary sources.

First Step vs. Step Up: Which Alabama Program Fits Your Situation?

Both AHFA programs are designed to make homeownership more accessible in Alabama, but they solve different problems:

• Choose First Step if you have a down payment but want to lower your monthly payment over the life of the loan. The below-market rate means you pay less interest every month for 30 years, which adds up to significant savings over time.
• Choose Step Up if you have sufficient income to qualify but lack the cash for a down payment. Step Up provides up to $10,000 in assistance at closing, at the cost of a 10-year second mortgage obligation.
• Consider both if you need the rate benefit and can qualify under First Step's area-specific income limits. Some borrowers may qualify for First Step's rate alongside the Affordable Income Subsidy Grant for additional closing cost help.

A participating AHFA lender can model both scenarios using your actual income, property, and loan amount to show which provides the greater long-term benefit for your situation.

Stacking with the Affordable Income Subsidy Grant

Eligible borrowers using an HFA Advantage conventional first mortgage may be able to combine First Step with the AHFA Affordable Income Subsidy Grant. The grant provides 1% of the loan amount for borrowers at or below 50% AMI, or 0.5% for those between 50.01% and 80% AMI. The grant is non-repayable and intended to help with closing costs. Source: AHFA Affordable Income Subsidy Grant.

How to Apply for AHFA First Step

1. Find a participating AHFA lender. First Step is only available through AHFA-approved lenders. AHFA publishes a lender directory on their website.
2. Get pre-approved. The lender will review your income, credit, and the property's MSA to determine whether you fall within First Step income limits and what rate you may qualify for.
3. Complete homebuyer education. A completed homebuyer education course is required before closing on any AHFA program.
4. Close on your home. The lender originates the First Step mortgage through AHFA's MRB program.

Contact Homebuyer Inside Track to discuss whether AHFA First Step or another Alabama program may fit your situation. All programs are subject to credit, income, property, and current AHFA guidelines.

Additional Alabama Resources

• Alabama First-Time Homebuyer Programs Overview
• AHFA Step Up: Down Payment Assistance
• FHA Loans
• USDA Loans
• VA Loans