AHFA Step Up: Alabama Down Payment Assistance

What Is the AHFA Step Up Program?

The AHFA Step Up program is the Alabama Housing Finance Authority's flagship down payment assistance product. It provides 4% of the home's purchase price - up to a maximum of $10,000 - as a second mortgage layered on top of a 30-year fixed-rate primary loan. Step Up is available statewide to both first-time and repeat buyers who meet the income and credit requirements.

Step Up is offered through participating AHFA-approved lenders across Alabama. You cannot apply directly through AHFA - the program is accessed through your mortgage lender as part of the loan origination process.

Step Up Is a Second Mortgage, Not a Grant

This distinction matters for budgeting and compliance. The Step Up down payment assistance is a 10-year second mortgage that borrowers repay in monthly installments alongside their primary 30-year mortgage. It is not forgiven and it is not a grant. You will have two loan payments: one on the primary mortgage and one on the Step Up second mortgage.

For buyers who need help covering their down payment but have the income to handle combined monthly obligations, Step Up reduces the upfront cash required to close. If you are specifically looking for money you will not need to repay, the separate AHFA Affordable Income Subsidy Grant is a true non-repayable grant, though it is only available on HFA Advantage conventional loans and for borrowers within AMI thresholds.

How AHFA Step Up Works

Here is the structure of a Step Up loan:

• First mortgage: 30-year fixed-rate loan (FHA, VA, USDA, or HFA Advantage conventional)
• Second mortgage: 10-year fixed-rate second mortgage equal to 4% of purchase price, up to $10,000
• Down payment: The second mortgage covers the down payment requirement, reducing cash needed at closing
• Repayment: Both mortgages are repaid monthly - the primary over 30 years, the Step Up second over 10 years

For example, on a $200,000 home, Step Up provides $8,000 (4% of $200,000). On a $300,000 home, Step Up provides $10,000 (the program cap). The assistance amount does not exceed $10,000 regardless of purchase price.

AHFA Step Up Eligibility Requirements

To qualify for the Step Up program, borrowers must meet all of the following, as confirmed on the AHFA Step Up program page:

• Income: Household income at or below $172,800, statewide - no variation by household size or county
• Credit score: Minimum 640 across all loan types (FHA, VA, USDA, HFA Advantage conventional)
• 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

The program is open to both first-time and repeat buyers. There is no purchase price cap listed for Step Up. Income limits are subject to change - verify the current limit with a participating lender before applying.

Loan Types That Work with AHFA Step Up

The Step Up second mortgage can be paired with four first mortgage types:

• FHA loans - common choice for buyers with credit scores from 580-699
• VA loans - for eligible veterans and active-duty service members
• USDA loans - for buyers in USDA-eligible areas of Alabama
• HFA Advantage conventional loans - for buyers with 640+ credit and income within conventional limits

Each first mortgage type has its own eligibility requirements in addition to AHFA's program requirements. Your lender will determine which combination fits your credit, income, and property situation.

Stacking the Affordable Income Subsidy Grant

Eligible borrowers using an HFA Advantage conventional first mortgage may be able to layer the AHFA Affordable Income Subsidy Grant on top of Step Up down payment assistance. The grant provides:

• 1% of the loan amount for borrowers at or below 50% of area median income (AMI)
• 0.5% of the loan amount for borrowers at 50.01% to 80% AMI

Unlike Step Up, the Subsidy Grant does not need to be repaid. It is designed to help with closing costs and is available only on HFA Advantage conventional loans. A participating AHFA lender can determine whether you qualify for both programs simultaneously.

AHFA Step Up vs. AHFA First Step: Which Is Right for You?

Alabama offers two primary AHFA programs, and they address different homebuying challenges:

• Step Up helps with your down payment. If you have sufficient income to qualify for a mortgage but lack the cash to meet a down payment requirement, Step Up reduces what you need at closing. The tradeoff is a 10-year second mortgage obligation.
• First Step helps with your interest rate. If you already have a down payment but want to reduce your monthly payment through a below-market interest rate, First Step may be the stronger choice. First Step uses Mortgage Revenue Bond financing to offer rates below what is typically available on the open market.

Some borrowers may be able to use First Step's rate benefit alongside the Affordable Income Subsidy Grant (if using an HFA Advantage conventional loan). A participating AHFA lender can compare both scenarios using your actual loan amount and income profile.

How to Apply for AHFA Step Up

1. Find a participating AHFA lender. AHFA programs are only available through approved lenders. AHFA publishes a lender directory on their website.
2. Get pre-approved. The lender will review your income, credit, and assets to determine which AHFA program and first mortgage type you may qualify for.
3. Complete homebuyer education. A completed homebuyer education course is required before closing. Your lender can direct you to approved courses.
4. Close on your home. The lender originates both the primary mortgage and the Step Up second mortgage simultaneously at closing.

Contact Homebuyer Inside Track to discuss your scenario and explore whether AHFA Step Up or other Alabama programs 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 First Step: Below-Market Rate Mortgages
• FHA Loans
• USDA Loans
• VA Loans