First-Time Homebuyer Programs in Tennessee

The down payment on a new home is often the biggest hurdle for first-time homebuyers. In Tennessee, where the average home value is $320,181, you would need a down payment of $64,036 to avoid buying private mortgage insurance.

Fortunately, first-time homebuyer programs in Tennessee can help you achieve homeownership. Some mortgages allow first-time homebuyers to put less down on a home, but these usually have income requirements and require mortgage insurance. MoneyGeek explores several state-specific and government-backed first-time homebuyer programs for people from different financial backgrounds.

Tennessee has grants and loans to assist first-time homebuyers with down payment and closing costs. Below, we have compiled the first-time homebuyer programs offered by the Tennessee Housing Development Agency to help you find the best option for your particular needs and situation.

The Great Choice Home Loan from THDA is a 30-year, fixed-rate mortgage program for middle- to moderate-income homebuyers. This loan is insured by FHA or USDA-RD, which means you may be eligible to borrow up to 96.5% of the total price of the home you’re buying. Note that it features a minimum credit score requirement of 640 and sets limits on household income and purchase prices, which vary by county. Eligible homes include off-site manufactured housing and traditional site-built homes.

The Homeownership for Heroes program by THDA offers special mortgage benefits for eligible active-duty military, veterans, law enforcement officers, EMTs, paramedics and firefighters. It provides a fixed-rate Great Choice Home Loan with a reduced interest rate of 0.5%. Additionally, qualified applicants can finance up to 100% of the home purchase price with VA or USDA-RD loans, while FHA loans offer financing up to 96.5%. The program also waives the first-time homebuyer requirement for participants statewide.

The Down Payment Assistance Program by THDA offers two options for eligible homebuyers using the Great Choice Home Loan. Both options provide funds to help cover down payment and closing costs and can be tailored based on the borrower’s repayment preferences.

• Deferred Option: Provides $6,000 in assistance as a second mortgage. It carries a 0% interest rate and is forgivable after 30 years. If the property is sold or refinanced within 30 years, the full amount is due.
• Amortizing Option: Offers up to 5% of the home’s purchase price, with a maximum of $15,000. This option is structured as a 30-year second mortgage, with the interest rate matching the primary mortgage.

Aside from statewide first-time homebuyer programs in Tennessee, city-specific programs are also available to help you pursue homeownership in your city of choice. Check out the table below for some of the cities in Tennessee that provide first-time homebuyer programs for potential residents.

Zero-down-payment loan programs in Tennessee allow homebuyers to purchase a home without putting money down. USDA and VA loans are two government-backed options that come with no down payment.

USDA loans are designed to assist homebuyers in rural areas. They are issued by the U.S. Department of Agriculture through its Rural Development Guaranteed Housing Loan program.

USDA loans offer several benefits, including low interest rates and zero down payments. They are intended to make homeownership more accessible for those who might not qualify for conventional financing. The program also provides flexible credit guidelines to help more families achieve homeownership.

To be eligible for a USDA loan, your property must be 2,000 square feet or below and located in a USDA-eligible rural area with less than 35,000 people. You also must meet certain income limits, which vary depending on where you live. For example, in Grundy County, Tennessee, the income limit for a four-person household is $54,900. In contrast, Sevier County, Tennessee, has an income limit of $58,700. Understanding these criteria can help you determine if a USDA loan is a viable option for your home purchase.

VA loans are a type of mortgage issued by the U.S. Department of Veterans Affairs and are designed to help veterans, active-duty service members and eligible surviving spouses become homeowners.

VA loans offer several benefits, including a no-down payment requirement. They also do not require private mortgage insurance (PMI), which can lead to further savings over the life of the loan. As of November 2024, the APR for a 15-year fixed-rate VA loan in Tennessee is 6.22%, while the APR for a 30-year fixed-rate loan is 6.37%.

To be eligible for a VA loan, you must meet specific requirements related to your length of service or service commitment, duty status and character of service. You must also meet certain income limits depending on where you live and provide a valid certificate of eligibility (COE).

First-time homebuyers in Tennessee can take advantage of low-down-payment loan programs that allow them to finance their home with a down payment of 3.5% or less. These programs include conventional, FHA and FHA 203(k) loans.

FHA loans and conventional loans are the two most common types of mortgages. FHA loans require a minimum down payment of 3.5%, making them accessible for buyers with limited savings. Conventional loans can require as low as a 3% down payment for first-time homebuyers but generally have stricter credit score and debt-to-income ratio requirements than FHA loans.

Interest rates are another important factor to consider. As of November 2024, the current APR for a 15-year fixed-rate conforming loan is 5.97%, while the APR for a 15-year fixed-rate FHA loan is 8.28%. APRs on FHA loans can be higher because there tend to be more fees and extra costs associated with borrowing money on government-backed loans.

Use our FHA vs. conventional loan calculator to help you compare FHA and conventional mortgage programs and find the best option for you.

We answered some frequently asked questions about first-time homebuyer programs in Tennessee to help you get closer to homeownership.

Explore additional MoneyGeek resources for first-time homebuyers in Tennessee to help you with the homebuying process.