Tennessee First-Time Homebuyer Programs
Tennessee offers first-time homebuyer programs through the Tennessee Housing Development Agency and local nonprofit organizations. To qualify for assistance with buying a home in the Volunteer state, you’ll need to meet income and credit requirements, plus follow purchase price limits. We’ll walk through the requirements first-time homebuyers must meet to qualify.
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First-time homebuyer programs in Tennessee
If you’re looking to buy a home in Tennessee, consider purchasing through a first-time homebuyer program. These programs offer a variety of benefits, including low interest rates and assistance with making a down payment or closing costs.
Great Choice Home Loan Program
The Tennessee Housing Development Agency (THDA) offers the Great Choice Home Loan program to help low- to moderate-income first-time homebuyers purchase a home. The program requires first-time and repeat homebuyers to work with approved lenders and realtors to find and purchase a home with a 30-year, fixed-rate conventional, FHA, VA or USDA-RD mortgage.
Requirements
- Minimum credit score: 640
- Annual income limits, dependent on household size and county
- Maximum purchase price limits dependent on county
- Completion of homebuyer education course
Pros and cons
| Pros | Cons |
|---|---|
Low down payment Fixed-rate interest Homebuyers can purchase a manufactured home | Homebuyers with credit scores under 640 won't qualify $99 fee for homebuyer education class |
Great Choice Plus down payment assistance
The Great Choice Plus program helps homebuyers cover their down payments with two options for assistance. For the first option, the Great Choice Plus-Amortizing program provides a second mortgage equal to 6% of the home’s purchase price to cover down payment or closing costs. You’ll make monthly payments over a 30-year term with a fixed interest rate that matches your primary mortgage.
The Great Choice Plus-Deferred program offers a forgivable second mortgage up to $6,000 for a 30-year term with 0% interest. If you sell or refinance the home before the term ends, you’ll need to pay the second mortgage balance in full.
Requirements
- Must purchase home through THDA’s Great Choice Home Loan program
- Must meet all eligibility requirements of the Great Choice Home Loan program
Pros and cons
| Pros | Cons |
|---|---|
No interest charged for Great Choice Plus-Deferred Assistance through Great Choice Plus-Deferred is forgivable Lowers the down payment and closing costs | Must remain in the home for full 30-year term or loan amount becomes due immediately Additional second mortgage payments can increase cost of home |
New Start Loan Program
The New Start Loan Program allows very-low to low-income homebuyers to build a single-family home in Tennessee. Nonprofit organizations work with homebuyers to determine eligibility and assist those selected with home construction, homebuyer education and originating the fixed-rate, 30-year term loan. Each program, Tier I and Tier II, dictates the maximum income limit and interest rates, as well as the maximum annual income accepted.
Requirements
- Tennessee resident
- Minimum credit score: 620
- Debt-to-income: 41% or less
- Agree to use home as primary residence
- Maximum annual income limits, dependent on program and county
- Maximum loan amount, dependent on program and county
- Completion of homebuyer education course
Pros and cons
| Pros | Cons |
|---|---|
Low down payment No-interest mortgage (Tier I) Interest equal to 50% of the Great Choice Loan Program (Tier II) | Only available with conventional loan Origination fee of 1% Not available to homebuyers with a credit 620 or less Loan amount is capped at $140,000 in certain counties |
Homeownership for Heroes
Homeownership for Heroes offers mortgage interest rate reductions to military personnel (active duty members or veterans), law enforcement officers, EMTs, paramedics and firefighters. Through this program, eligible homebuyers can get their interest rate reduced by 0.5% on a fixed-rate, 30-year term mortgage through a THDA-approved lender.
Requirements
- Identify as an active duty military member or veteran, law enforcement officer, EMT, paramedic or firefighter
- Minimum credit score: 640
- Household income limits, depending on household size
- Maximum purchase price, depending on county
- Completion of homebuyer education course
Pros and cons
| Pros | Cons |
|---|---|
Interest rate reduction of 0.5% Eligible for Great Choice Plus Low down payment Fixed-rate interest | Homebuyers with a credit score under 640 don't qualify Must pay homebuyer education course fee of $99 |
Tennessee first-time homebuyer qualifications
To qualify for a first-time homebuyer program in Tennessee, you must meet its eligibility requirements. Qualifications for each program varies, but homebuyers can expect to meet the following eligibility requirements:
- Annual income limits, depending on county
- Debt-to-income ratio of 45% or less
- Maximum home price of $375,000, depending on county
- Minimum credit score of 620 or 640, depending on program
- Successfully complete a homebuyer’s education course
If you qualify for a first-time homebuyer program, here’s how to move forward with applying:
→ 1. Take your homebuyer education course. THDA home loan and down payment assistance programs require homebuyers to complete a homebuyer education course, which teaches homebuyers how to determine their home buying budget, choose a home, qualify for a loan and maintain their home. The course is available online or in-person through a TDHA-approved instructor and costs $99.
→ 2. Find a THDA-approved lender. Once you complete the homebuyer education course, you can move forward with finding a lender. You must work with an approved lender who can help you determine which type of home loan you’re eligible for, apply for preapproval and complete the loan application process.
→ 3. Find a real estate agent. To find your first home, you’ll work with a THDA-approved real estate agent. Your agent can help you put in an offer and get inspections scheduled.
→ 4. Apply for down payment assistance. Review the requirements for THDA’s down payment assistance programs to determine your eligibility and apply. Depending on the program, the funds can be used to cover your down payment and closing costs.
→ 5. Close on your mortgage. Mortgage closing requires you to review and sign your loan documents and pay closing costs. You’ll then get the keys to your first home.
Understanding Tennessee first-time homebuyer down payment assistance
First-time homebuyer assistance in Tennessee can come in the form of a grant, second mortgage or a mortgage credit certificate.
Deferred second mortgage
A second mortgage is an additional lien on your home. When first-time homebuyer assistance comes as a deferred second mortgage, that second mortgage provides funds upfront to help homebuyers cover closing costs or the down payment. It would then only be repaid when the home is sold or refinanced.
Forgivable second mortgage
A forgivable second mortgage is also a second lien on your home. However, when down payment assistance comes in the form of a forgivable second mortgage, the funds won’t need to be repaid — so long as the buyer lives in the home for the required period of time.
Grant
Grants are free money that provide funds to homebuyers to pay their closing costs and down payment. While homebuyers aren’t required to repay their grant, the issuing organization may require repayment if the home is sold within a certain period.
Mortgage credit certificate
First-time homebuyers who qualify can earn a tax credit for their paid mortgage interest. If a buyer meets all of the MCC requirements, they can receive a credit of up to $2,000 when filing their federal taxes.
THINGS YOU SHOULD KNOW
If you qualify for a Tennessee down payment assistance program, a forgivable second mortgage can help to cover your down payment. However, depending on the program, you may need to live in the home for a certain amount of time before the loan is forgiven.
How much of a down payment do I need to buy a house in Tennessee?
When buying a house in Tennessee, the required down payment varies by loan program. For example, VA loans often do not require a down payment, but a conventional loan may require up to 20%.
Can I qualify for down payment assistance in Tennessee?
To qualify for down payment assistance in Tennessee, you’ll need to get a Great Choice Home Loan, which requires homebuyers to:
→ Plan to purchase their first home
→ Have a credit score of 640 or higher
→ Meet an annual income limits, depending on household size
→ Complete a homebuyers education course
How do I apply for Tennessee first-time homebuyer down payment assistance?
If you’re applying for a THDA down payment assistance program, there’s a few things you’ll need to do before you can apply. You’ll first have to complete a homebuyer education course and apply for a loan with an approved lender. Once the loan application process is complete, you can apply for down payment assistance through TDHA.
Other first-time homebuyer loan programs
Conventional loans
Conventional loans often carry more stringent lending requirements than government-backed loans, but first-time homebuyers may still qualify. When applying for a conventional loan, a Fannie Mae HomeReady or Freddie Mac Home Possible loan offers borrowers with less-than-perfect credit and limited income flexibility with their down payment.
FHA loans
Both first-time homebuyers and repeat buyers seek loans backed by the Federal Housing Administration (FHA). Known as an FHA loan, this is a great option for homebuyers who may not have funds for a large down payment. Borrowers may only need to make a minimum down payment of 3.5% with credit scores of 580 or higher, but if your score is between 500 and 579, you’ll be asked to make a 10% down payment.
VA loans
VA loans are home loans guaranteed by the U.S. Department of Veterans Affairs. VA loans are available for active-duty service members, veterans and their spouses and don’t require a down payment. Typically, VA loans don’t carry a minimum credit score requirement, but most homebuyers may need a 620 or higher to qualify.
USDA loans
Loans from the U.S. Department of Agriculture (USDA) Rural Development are available to low- and moderate-income borrowers with plans to build or purchase a single-family home in rural areas. Similar to VA loans, USDA loans don’t always require homebuyers to put money down.
What are the best first-time homebuyer loans?
Homebuyers have their choice between conventional, FHA, VA and USDA loans. Depending on your home loan needs and individual circumstances, one loan type may be more fitting.
| First-time homebuyer loan | Best for first-time homebuyers who are: |
|---|---|
| Conventional | Moderate to high-income with good credit |
| FHA | Low- to high-income with poor to fair credit who want a down payment of 10% or less |
| VA | Active-duty service members, veterans or their spouse who prefer no down payment and low closing costs |
| USDA | Low to moderate income with plans to purchase or build homes in rural areas |
Home price trends in Tennessee major areas
In Tennessee’s major areas, monthly mortgage payments have increased in the recent past. According to the National Association of REALTORS®, in the third quarter of 2022 (the most recent data available), monthly payments went up to $1,295 from $796 in the previous year — a difference of $499 — in Shelby County, Tennessee’s largest county and home to the city of Memphis.
Compared to Shelby County, Tennessee’s second and third largest counties, Davidson (where the capital city Nashville is located) and Knox (whose county seat is Knoxville), homeowners experienced even larger increases. The average mortgage payments went up by $968 ($1,309 to $2,277) in Davidson County and $696 in Knox County ($958 to $1,654) in that same time period.
Is there a first-time homebuyer tax credit in Tennessee?
Yes, Tennessee offers a first-time homebuyer credit. The mortgage credit certificate (MCC) allows homebuyers to claim an annual credit of up to $2,000 of their paid mortgage interest.
What are the current mortgage rate trends in Tennessee?
Although the U.S. average mortgage rates for 2023 are at 6.61% and 5.93% for 30-year fixed-rate mortgages and 15-year fixed rate mortgages, respectively, the LendingTree mortgage rates page can help you find more precise mortgage rates in Tennessee.
