2025 Tennessee First-Time Homebuyer Programs and Loans
If you’re looking to buy your first home in Tennessee, there are some programs that may help save you money, including downpayment assistance and tax credits.
Here’s what you need to know about first-time homebuyer loans and grants in the Volunteer State and what it takes to qualify for them.
First-time homebuyer programs in Tennessee
There are a number of programs in Tennessee to help first-time homebuyers. Each program has its own set of requirements (as well as its own pros and cons), which we delve into below:
- Great Choice Home Loan Program: Good option for first-time homebuyers with middle or moderate incomes.
- Homeownership for Heroes: Good option for members of the military, veterans and first responders.
- Great Choice Plus: Good option for those homebuyers who have a Great Choice Home Loan.
- New Start Loan Program: Good option for low- and very low-income Tennesseans.
Great Choice Home Loan Program
The Great Choice Home Loan Program is offered through the Tennessee Housing Development Agency (THDA). It provides assistance for first-time homebuyers with middle to moderate incomes. These 30-year loans — which are insured by the Federal Housing Administration (FHA) or the U.S. Department of Agriculture (USDA) Rural Development — come with fixed interest rates and require a minimum 3.5% down payment. Eligible borrowers can take advantage of the Great Choice Plus down payment assistance program to help defray upfront loan costs.
Requirements
- Minimum credit score of 640
- Maximum debt-to-income ratio of 45%
- Income and purchase price limits vary by county
- Completion of a homebuyer education class
Pros and cons
| Pros | Cons |
|---|---|
Fixed interest rate Low down payment Can be used to purchase a manufactured home | Income and purchase price limits apply Minimum credit score of 640 Must take a homebuyer education class, which costs $25 to $99 |
Homeownership for Heroes
The THDA also offers the Homeownership for Heroes program for members of the military, veterans and first responders. Homeownership for Heroes is part of the Great Choice Home Loan program, providing 30-year loans insured by the U.S. Department of Veterans Affairs (VA), the USDA or the FHA. Interest rates are fixed and reduced by 0.5% for those buyers who qualify.
Requirements
- Must be active-duty military, National Guard, veteran, state or local law enforcement officer, EMT/paramedic or firefighter
- Minimum credit score of 640
- Household income and purchase price limits apply, which vary by county
- Completion of a homebuyer education class
Pros and cons
| Pros | Cons |
|---|---|
Reduced, fixed interest rate Option for Great Choice Plus down payment or closing cost assistance | Buyers with credit scores below 640 don’t qualify Must take a homebuyer-education class, which costs between $25 and $99 |
Great Choice Plus
Once first-time homebuyers are approved for a Great Choice Home Loan, they can also apply for down payment assistance through the THDA’s Great Choice Plus program. This program offers second loans with either deferred or amortizing payment options. The deferred option provides a $6,000 second mortgage with a 0% interest rate, and it’s forgivable at the end of the loan’s 30-year term. However, if you sell or refinance the home before the end of that term, you’ll have to pay it back in full. The amortizing option provides up to 5% of the home’s sales price with a limit of $15,000, which is paid off over the life of the loan. The interest rate is equal to that of the first mortgage.
Requirements
- Must have a Great Choice Home Loan
Pros and cons
| Pros | Cons |
|---|---|
0% interest with deferred option Deferred option is forgivable at end of loan term Assistance can lower down payment and closing costs | With deferred option, if you sell or refinance before the 30-year term is up, you must pay the loan in full Amortizing option increases the cost of the home |
New Start Loan Program
The New Start Loan Program helps low- and very low-income residents purchase new homes. Nonprofit organizations work with established programs to select homebuyers, determine eligibility and manage construction of the home. There are two tiers — Tier I and Tier II — that determine the terms of the loan. The interest rate for Tier I loans is a fixed 0%, while the interest rate for Tier II is equal to one half of the Great Choice program interest rate.
Requirements
- Income limits apply, which vary by county
- Minimum credit score of 620
- Combined debt-to-income ratio of 41% or less
- Be a Tennessee resident within 60 days of the loan’s closing
- Be a U.S. citizen or permanent resident
- Completion of homebuyer education course
Pros and cons
| Pros | Cons |
|---|---|
0% or low interest rate depending on tier Low down payment | Maximum loan amount of $200,000 Buyers with credit scores below 620 won’t qualify Origination fee: Maximum 1% on first mortgage |
Tennessee first-time homebuyer qualifications
Each first-time homebuyer program in Tennessee has a different set of qualifications. In general, however, there are income and maximum home price limits, both of which vary by county. A minimum credit score of 640 is necessary for most programs, though it drops to 620 for New Start loans. According to Experian, the average credit score in Tennessee was 706 in 2024, which means many state residents will meet the minimum credit score qualifications of 620 or 640. Applicants also must have a debt-to-income ratio of 45% or less and complete a first-time homebuyer’s course.
Steps to apply for a first-time homebuyer program
If you qualify and are ready to apply for a first-time homebuyer program in Tennessee, here are the steps you need to take:
Step 1: Attend a first-time homebuyer class.Completion of a homebuyer-education class is mandatory for first-time homebuyer programs in Tennessee. There is a cost for these classes, which ranges from $25 for in-person via Zoom to $99 for online.
Step 2: Find an approved lender.Select mortgage lenders have been approved by the THDA to help homebuyers determine their eligibility, apply for preapproval and complete the application process. THDA provides a list of those lenders from which you can choose.
Step 3: Find an approved realtor.Once you’re ready to shop for homes, you’ll need to select a realtor. The THDA has a list of approved realtors, which is broken up into three divisions across the state — Eastern, Western and Middle.
Step 4: Apply for assistance with your down payment and closing costs.If you’re approved for a Great Choice Home Loan, you can also apply for help with your down payment and closing costs. Great Choice Plus second loans offer deferred and amortizing options.
Step 5: Close on your mortgage.Before the home is officially yours, the final step you need to take is closing on the mortgage. It can take anywhere from a few days to a couple of months to complete all the necessary steps to close and finally sign all the necessary papers. Once you do and the escrow company receives your funds, you’re ready to move into your new place.
Understanding Tennessee first-time homebuyer down payment assistance
One of the typical challenges facing first-time homebuyers is coming up with a down payment. In Tennessee, there are several types of assistance that can help. Out of the 26 downpayment assistance (DPA) programs in Tennessee, about 96% of them had available funding as of the fourth quarter of 2024, according to Down Payment Resource’s homeownership program index.
Deferred second mortgage
Requires repayment? Yes, when the home is sold or refinanced.
A deferred second mortgage is an additional lien on your home. It provides funds up front to help cover closing costs and/or the down payment. It’s repaid when the home is sold or refinanced.
Forgivable second mortgage
Requires repayment? No, if the buyer lives in the home for the required period of time.
A forgivable second mortgage is also a second lien on your home. However, in this case, the funds won’t have to be repaid as long as the buyer lives in the home for the required period of time.
Grant
Requires repayment? Some types of grants require repayment if the home is sold within a certain period of time.
Grants are given to homebuyers to pay their down payment and closing costs and generally won’t require repayment. However, depending on the type of grant, repayment could be required if the home is sold within a certain period.
Mortgage credit certificate
Requires repayment? No, if you live in your home for a required period of time.
Some first-time homebuyers can earn a tax credit of up to $2,000 of the mortgage interest they pay. To be eligible, you must meet the mortgage credit certificate requirements, which include income and purchase price limits.
Keep these things in mind about DPA programs
When considering DPAs, make sure that you fully understand the terms. While some of these programs offer loan forgiveness, that may only apply if you own the home for a certain amount of time. That means if you move, refinance or sell the home before the loan is up, you may have to pay it back.
How much of a down payment do I need to buy a house in Tennessee?
The amount you’ll need for a down payment in Tennessee will vary depending on a number of factors, including the type of loan you secure and the size of your mortgage. However, a recent LendingTree study found that the average down payment for first-time homebuyers in the state of Tennessee was $32,530.
Can I qualify for down payment assistance in Tennessee?
In Tennessee, down payment assistance is offered through Great Choice Plus second loans. To secure one, you must already be qualified for a Great Choice Home Loan. The requirements for Great Choice Home Loans include:
- Minimum credit score of 640
- Income and purchase price limits, which vary by county
- Completion of a homebuyer education class
How do I apply for Tennessee first-time homebuyer down payment assistance?
To apply for first-time homebuyer down payment assistance in Tennessee, you must first attend a homebuyer education class and secure a Great Choice Home Loan. Your lender can then help you apply for this assistance.
Here’s what you need to know about the process of applying for a home loan.Other first-time homebuyer loan programs
Conventional loans
Conventional loans are those that aren’t backed by the government. They typically come with more stringent requirements compared to other loan types. However, for those who qualify, they’re typically the most cost-effective home loans.
FHA loans
FHA loans are backed by the Federal Housing Administration. They’re generally easier to qualify for than conventional loans but also come with some extra costs, such as two forms of mortgage insurance. FHA mortgage rates are typically lower than conventional loan rates.
VA loans
VA loans are guaranteed by the U.S. Department of Veterans Affairs. They’re available to active-duty service members, veterans and surviving spouses. They typically offer lower interest rates and closing costs and don’t require a down payment.
USDA loans
USDA loans are available to low- and moderate-income borrowers to build or purchase a single-family home in eligible rural areas. Similar to VA loans, USDA loans don’t require a down payment.
What are the best first-time homebuyer loans?
Which loans are best for first-time homebuyers? That depends on your personal circumstances. Factors to weigh include your income, credit score and the amount of money you have for a down payment. In some cases, your profession and where you intend to purchase a home may be factors, as well.
| Loan program | Best for first-time homebuyers who: |
|---|---|
| Conventional | Have moderate to high incomes and solid credit scores. |
| FHA | Have poor to fair credit and want a down payment of 10% or less. |
| VA | Are members of the military and veterans who may not have money for a down payment or have low credit scores. |
| USDA | Have low or moderate income and want to purchase a home in a rural area. |
Home price trends in Tennessee’s major areas
Like most of the country, Tennessee has seen an increase in housing prices in recent years, though it hasn’t been as steep as in some states. In 2024, housing prices in Tennessee rose 5.5% — by comparison, prices rose an average of 4.3% nationwide.
Over a five-year period, however, housing prices in Tennessee have risen 71.27% — a rate surpassed by only nine other states (Connecticut, Florida, Idaho, Maine, Montana, New Hampshire, North Carolina, South Carolina and Vermont).
The Knoxville metro had the highest five-year growth rate in the state, with housing prices there rising 93.39% (they rose by 5.50% in 2024). In the Memphis metro, on the other hand, prices only rose 1.6% in 2024 and 46.08% over five years. The Nashville-Davidson-Murfreesboro-Franklin metro, which contains the state’s capital, saw home prices increase by 4.66% in 2024 and by 65.43% over the previous five years.
Is there a first-time homebuyer tax credit in Tennessee?
There’s no longer a federal first-time homebuyer tax credit, though some states still offer tax breaks for first-time homebuyers. One example of these tax breaks is the mortgage credit certificate, which typically lets homebuyers claim an annual credit of up to $2,000 of their paid mortgage interest.
What are the current mortgage rate trends in Tennessee?
Nationally, mortgage rates are expected to remain higher in 2025 than they were before the pandemic. In Tennessee, rates are expected to remain steady at 6% to 7% throughout the year, according to LendingTree’s mortgage rate forecast.