2024 Tennessee First-Time Homebuyer Programs and Loans

Buying your first home is an exciting milestone, but it can also be an expensive endeavor. Fortunately, there are programs to help cut costs for first-time homebuyers in Tennessee.

If you’re a first-time homebuyer in The Volunteer State, here’s what you need to know about down payment assistance, qualifications, tax credits and more.

First-time homebuyer programs in Tennessee

There are a number of programs in Tennessee to help first-time homebuyers. Each has its own set of requirements (as well as its own pros and cons), which we cover below:

• Great Choice Home Loan Program
• Homeownership for Heroes
• Great Choice Home Plus
• New Start Loan Program

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 Rural Development — come with fixed interest rates and require a minimum down payment of 3.5%. 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
• Income and purchase price limits vary by county
• Completion of a homebuyer education class

Pros and cons

Homeownership for Heroes

The THDA 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) or the FHA. Interest rates are fixed and reduced by 0.5% for those 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, which vary by county
• Completion of a homebuyer education class

Pros and cons

Great Choice Plus

Once first-time homebuyers are approved for a Great Choice Loan, they can also apply for down payment assistance through the THDA’s Great Choice Plus program. It 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 amortized 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

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 that vary by county
• Minimum credit score of 620
• Combined debt-to-income ratio of 41% or less
• Tennessee resident within 60 days of the loan’s closing
• U.S. citizen or permanent resident
• Completion of homebuyer education course

Pros and cons

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 is 705 in 2023, which means many state residents will meet score qualifications.

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.Attendance at a homebuyer-education class is mandatory for first-time homebuyer programs in Tennessee. There is a cost for these classes, which range 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 Loan, you can also apply for help with your down payment and closing costs. Great Choice Plus second loans offer deferred and amortized 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.

Deferred second mortgage

A deferred second mortgage is an additional lien on your home. It provides funds upfront to help cover closing costs and/or the down payment. It’s repaid when the home is sold or refinanced.

Forgivable second mortgage

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

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

Some first-time homebuyers can earn a tax credit for 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 offer loan forgiveness, that may only apply if you own the home for a certain amount of time. As such, 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 purchase price of the home. However, a recent LendingTree study found that the average down payment for first-time homebuyers in the state of Tennessee was $28,946.

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 640 credit score
• 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.

  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.

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 you have ready to put down as a down payment. In some cases, your profession and where you intend to purchase a home may be factors as well.

Home price trends in Tennessee’s metro 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 2023, housing prices in Tennessee rose 6.24%. — nationally, the average rate rose 6.49%.

Over a five-year period, however, housing prices in Tennessee have risen 76.48% — a rate surpassed by only six other states (Florida, Idaho, Arizona, Maine, Montana and North Carolina).

The Knoxville metro had the highest rate of growth in the state in 2023, with housing prices there rising 11.71% in 2023 and 97.42% in the last five years.

In the Memphis metro, on the other hand, prices only rose 0.66% in 2023 and 58.02% over five years. The Nashville-Davidson-Murfreesboro-Franklin metro, which contains the state’s capital, saw home prices increase by 3.73% in 2023 and by 70.27% 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 will 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?

So far in 2024, the state of Georgia has seen a steady rise in interest rates. Rates on 30-year and 15-year fixed loans and 5/1 ARMs are all sitting higher than earlier in the year. Of these three products, so far the 15-year fixed rate has seen the most dramatic increase. The current mortgage rate forecast from LendingTree predicts that interest rates will remain above 6% throughout 2024.