A Guide To First-Time Home Buyer Programs In Tennessee

Tennessee has an affordable cost of living, a rich, diverse culture and the opportunity to experience numerous outdoor adventures. And if you’re a first-time home buyer, Tennessee will extend a helping hand with an array of resources to make buying a home even more accessible.

The Tennessee Housing Development Agency (THDA) offers first-time home buyers low-cost mortgages, down payment assistance and grants. If you’re interested in buying your first house in the Volunteer State, get familiar with how these programs work and their eligibility requirements.

You should explore all your options because not all lenders participate in all home loan programs. Contact Rocket Mortgage^® if you’re interested in a specific loan program.

Qualifying As A First-Time Home Buyer In Tennessee

To qualify as a first-time home buyer in Tennessee, you must meet a few general requirements. Eligibility for Tennessee housing programs can vary. Some programs in specific areas even allow repeat homeowners to qualify.

The general requirements to qualify as a first-time home buyer in Tennessee include:

• Must not have owned a home in the past 3 years
• Must meet annual county income limits
• Must have a debt-to-income ratio (DTI) of 45% or less
• The property doesn’t exceed the county purchase price limit
• Must complete a home buyer education course

First-Time Home Buyer Programs In Tennessee

In line with many states, Tennessee considers an individual who hasn’t owned a primary residence in the last 3 years to be a first-time home buyer. Eligible borrowers may qualify for first-time home buyer programs and mortgage assistance.

THDA Great Choice Home Loan

The Tennessee Housing Development Agency offers the Great Choice Home Loan, a 30-year fixed-rate mortgage program. The program is available to moderate-income first-time and repeat Tennessee home buyers and applies to government-backed loans, such as Department of Veterans Affairs (VA), Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and conventional loans.

THDA Loan Requirements

• 640 minimum credit score
• Borrower doesn’t exceed county income and purchase price limits
• Complete a mandatory home buyer education class
• Minimum down payment based on loan type

THDA Homeownership For Heroes

Homeownership for Heroes helps active-duty service members, veterans, police, EMTs, paramedics and firefighters realize their dream of owning a home by providing down payment assistance and reducing the interest rate on a fixed-rate 30-year mortgage by 0.5%.

THDA Homeownership For Heroes Requirements

• Must be an active-duty service member, veteran, law enforcement officer, EMT, paramedic or firefighter
• 640 minimum credit score
• Borrower doesn’t exceed county income and purchase price limits
• Complete a mandatory home buyer education class

Down Payment Assistance Programs In Tennessee

Many would-be homeowners face the near-universal challenge of saving enough money to cover a down payment. To buy a $300,000 home with a 3.5% down payment, you’d need to make a $10,500 down payment.

Tennessee offers down payment assistance through the Great Choice Plus program to help make homeownership more affordable. The program gives qualified home buyers the cash to cover their down payment or closing costs.

THDA Great Choice Plus

If you qualify for a Great Choice home loan, you’re also eligible for down payment assistance. The THDA Great Choice Plus down payment assistance program provides either 6% of the purchase price or $6,000 in down payment assistance as a second loan.

Borrowers can take advantage of this program in two ways:

• Deferred option: The deferred option provides a $6,000 forgivable second mortgage on your home. You don’t pay the loan during its 30-year term, and interest is 0%. The loan is forgiven at the end of the term unless you refinance or sell before then. If you refinance or sell, the loan will be due in full.
• Amortizing option: With the amortizing option, you receive a second mortgage for 6% of the home sale price. The loan isn’t forgivable, and you can use the funds to cover closing costs. You make monthly payments on the 30-year second mortgage, which carries the same interest rate as your first mortgage.

Tennessee First-Time Home Buyer Programs By City

Tennessee also offers city-specific home buyer programs. Here are some prime options to consider.

Knoxville

Knoxville offers down payment assistance for low-income borrowers who meet income requirements. The city also administers federal, state and local grants to make homeownership more accessible to Knoxville residents. Some grant opportunities include the Community Development Block Grant, HOME Investment Partnerships Grant and the Emergency Solutions Grant, which helps families experiencing a housing crisis or homelessness.

Memphis

The Division of Housing and Community Development (HCD) financially assists eligible home buyers through its Down Payment Assistance Program. If you qualify, you may receive down payment assistance up to 10% of the sales price at a maximum of $25,000.

Nashville

Existing and new home buyers in Nashville can take advantage of The Housing Fund. The fund provides resources that help low- to moderate-income home buyers find affordable housing and access grants and tax relief.

Other First-Time Home Buyer Loans In Tennessee

Here are some other programs available to help first-time home buyers in Tennessee.

HomeReady Mortgage

The Fannie Mae HomeReady mortgage is available to low-income home buyers with smaller savings to put toward a down payment. You may qualify for a mortgage with a 3% down payment and receive competitive interest rates. Both HomeReady^® and Home Possible^® Loans come with a loan level price adjustment (LLPA) credit of 1% of the loan amount up to $3,500. If the loan is below $200,000, the credit will be $2,000 as opposed to 1%. If you make less than 50% of the area median income, you'll get a minimum $2,500 grant.

Home Possible Mortgage

The Freddie Mac Home Possible Mortgage offers affordable mortgages with down payments as low as 3% to low-income borrowers. Borrowers can also use many different funding sources for their down payment, including gift money from family, employer-assistance programs and secondary financing.

Good Neighbor Next Door Program

The Good Neighbor Next Door Program is available to law enforcement officers, teachers, firefighters and emergency medical technicians. If you agree to buy a home in a revitalization area and live there for 36 months, you’ll receive a 50% discount on the property purchase price.

Traditional Financing

• Conventional loans: Conventional loans aren’t backed by the government and have stricter credit and down payment requirements. You can use a conventional loan to buy a new home or refinance an existing one.
• FHA loans: FHA loans are popular with first-time home buyers thanks to their lenient down payment and credit requirements. With a credit score of 580 or higher, you can buy a home with a 3.5% down payment.
• VA loans: VA loans make homeownership more affordable for veterans and active-duty service members. VA loans typically don’t require a down payment, offering flexibility for buyers. While the VA doesn’t mandate a minimum credit score, individual lenders can set a minimum credit score requirement that ranges from 500 – 650.
• USDA loans: USDA loans are available to low-income borrowers buying a home in an eligible rural area. The loans have low interest rates and no down payment requirement.

Tennessee First-Time Home Buyer Tax Credits

Tennessee offers a mortgage credit certificate (MCC) through the Tennessee Housing Development Agency. An MCC allows first-time and repeat home buyers and veteran buyers to claim a tax credit of 50% annual mortgage interest up to the maximum federal limit of $2,000 per year. A homeowner can claim any remaining loan interest as a tax deduction.

Current Mortgage Rates In Tennessee

Tennessee's mortgage rates have been between 6% – 7% for 15- and 30-year fixed-rate conforming loans. When figuring out how much you can afford each month on a mortgage, consider other direct costs, like homeowners insurance and property taxes, the size of your down payment and more to estimate a monthly mortgage payment.

Before you begin the home buying process, get quotes from several mortgage lenders and compare interest rates and fees to find the best mortgage for your new home in Tennessee.

The Bottom Line

Buying a home doesn’t have to be overwhelming. In Tennessee, there are resources to help first-time home buyers confidently navigate the home buying process and afford a home. Not all lenders participate in all home loan programs. Contact Rocket Mortgage if you’re interested in a specific loan program.

If you’re ready to move forward, start a mortgage application with our friends at Rocket Mortgage today.