How to Buy a House in Tennessee: 6 Steps

The average home value in Tennessee is $326,084, lower than the national average of $362,481.

Purchasing a house is a major financial decision that requires careful consideration. Understanding down payment assistance programs, mortgage types and state-specific regulations can ensure a smooth journey toward homeownership in the Volunteer State. MoneyGeek compiled essential pointers to help you navigate the homebuying process in Tennessee, from saving the down payment and choosing the ideal location to finding the best financing option for your particular needs and credit history.

According to the U.S. Census Bureau, the homeowner vacancy rate in Tennessee for the second quarter of 2024 was 1.2%. The homeowner vacancy rate measures the percentage of vacant homes available for sale, which helps gauge the balance between housing supply and demand.

A stable vacancy rate that offers homebuyers choice and flexibility is around 2%. In Tennessee, a homeowner vacancy rate of 1.2% means high housing demand for limited inventory. The current market conditions may present challenges for homebuyers, who could face competition and higher prices.

Before buying a house in Tennessee, review your financial and credit history. Lenders evaluate your financial stability and creditworthiness to determine your eligibility and mortgage terms. A strong financial profile increases your chances of getting approved when applying for a mortgage.

Your credit score determines the mortgage loans and interest rates you qualify for. A higher score can help you secure a favorable rate. In Tennessee, the average credit score was 705 in the third quarter of 2023, according to Experian.

If your credit score falls within the poor range of 300 to 579 on the FICO scale, purchasing a home is still possible, but obtaining mortgage approval may be challenging. Check the table below for your ideal mortgage type based on the minimum credit score requirements.

Source: Experian

Your debt-to-income (DTI) ratio is crucial for lenders when assessing your capacity to manage mortgage debt. Lenders can determine how much mortgage debt you can reasonably take on by analyzing the proportion of your monthly income dedicated to debt payments. In Tennessee, the average mortgage debt reached $208,122 in the third quarter of 2023, according to Experian. This figure highlights the financial responsibility of homeownership in the state.

Monthly debt payments included in your DTI ratio typically encompass credit card payments, car loans, student loans and housing expenses. Use our debt-to-income ratio calculator below to determine your front-end DTI, which focuses on housing-related debt, and your back-end DTI, which includes all debts.

Making the mistake of purchasing a house beyond your financial means can lead to stress and financial instability. To prevent this, consider using the 28% rule as a guideline. This rule suggests that your monthly mortgage payment should not exceed 28% of your gross monthly income.

According to the U.S. Bureau of Labor Statistics, the median annual income in Tennessee as of April 2024 was $43,820, or a monthly income of $3,652 before taxes. Applying the 28% rule, you should aim for a monthly mortgage payment of no more than $1,022.

To get a ballpark figure of your potential monthly mortgage payment in Tennessee, use our mortgage calculator below.

A down payment is the initial amount paid when purchasing a house. It helps secure a mortgage, with 20% often being the standard. However, it can also be an obstacle for some homebuyers. In Tennessee, the average home value is $326,084, requiring a 20% down payment of $65,217. For homes valued above average at $375,000, a 20% down payment would be $75,000.

Fortunately, a 20% down payment is not mandatory. Many mortgage options allow for a lower down payment. Government-backed loans like VA and FHA require 0% and 3.5% down payments, respectively.

If you put down less than 20%, your lender may require you to take out private mortgage insurance. Our PMI calculator can estimate your monthly PMI premium based on your credit score and down payment.

Tennessee offers several down payment assistance programs to make homeownership a reality for many residents. These programs help reduce the financial burden of purchasing a home by providing funds for the down payment. One such program is the Great Choice Loan Program from the Tennessee Housing Development Agency.

Check the table below for the available down payment assistance programs in Tennessee.

Finding the right location in Tennessee requires balancing several factors. Consider the average house price in different areas and how close you are to family, friends and work or school. Also, think about access to public transportation, parks, restaurants and shopping centers, as these can greatly affect your day-to-day life.

The cost of living also plays a role in your decision. According to the Missouri Economic Research and Information Center (MERIC), Tennessee's cost of living index for the first quarter of 2024 was 90.3, which is below the national average of 100. When choosing the right location, consider these essential expenses:

• Food
• Health care
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check the table below to see the average home values in some cities of Tennessee based on recent data. You can also use our cost of living calculator to help estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Working with a real estate agent can significantly speed up your house hunt in Tennessee. Agents provide the advice you need, handle paperwork, offer an expanded list of property options and recommend service providers like title companies and inspectors to assist you in purchasing your home in Tennessee.

Do your due diligence and interview those with experience in the neighborhoods you're interested in. Consider these tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

You can also use the license holder search tool from the Tennessee Department of Commerce and Insurance to find or verify real estate agents in Tennessee.

Navigating the homebuying process in Tennessee involves finding a mortgage that fits your budget. Options include conventional, jumbo, FHA, VA and USDA loans. You can choose from 10-year, 15-year, 20-year or 30-year terms. Consider whether a fixed-rate mortgage or an adjustable-rate mortgage (ARM) suits your financial goals. Selecting the best financing option can increase your approval odds and save money over time.

Interest rates on a mortgage can change daily due to factors like the type of mortgage, the lender and the economy. While the interest rate is the cost of borrowing expressed as a percentage of the loan amount, the annual percentage rate (APR) is a more comprehensive view of the actual cost of borrowing as it includes additional fees associated with the loan.

As of December 2024, the APR for a 30-year fixed conforming loan in Tennessee is 6.40%, while the APR for a 30-year fixed-rate FHA loan is 8.04%. Check the table below to see the current rates in Tennessee by mortgage type.

Getting pre-approved for a mortgage in Tennessee can help you understand your budget and enhance your offer's appeal to sellers. Lenders typically issue a mortgage pre-approval letter, which indicates the loan amount you qualify for based on a thorough assessment of your financial situation. This letter is usually valid for 60 to 90 days, so you can shop for homes with confidence within this period.

To obtain a mortgage pre-approval, you will need to submit the following documents:

• Proof of income, such as pay stubs or tax returns
• Employment verification
• Credit history report
• Bank statements
• Identification documents
• Information on any existing debts

While pre-approval and prequalification assess your financial situation, they differ in depth and reliability. Prequalification is a preliminary evaluation based on self-reported information, estimating how much you can borrow. Pre-approval is a more detailed financial check, offering a more accurate loan amount and a stronger position when making an offer on a home.

Home inspections provide valuable insights into a property's condition. They are recommended to identify potential issues that may not be visible to the untrained eye. Inspectors typically examine critical components such as the roof, foundation, plumbing, electrical systems and HVAC. The inspection report usually includes detailed findings on these areas and any recommended repairs or maintenance, offering a comprehensive view of the home's current state.

For instance, an inspection might reveal foundation issues, impacting the property's appraisal value or the buyer's ability to secure financing at the desired amount. In some cases, the buyer might decide to rescind their offer.

In Tennessee, home inspections are regulated by the Tennessee Department of Commerce and Insurance. Licensed inspectors must adhere to the state's standards of practice, inspecting readily visible and accessible installed systems and components. They are required to provide clients with a written report summarizing their findings.

If you're looking for a home inspector in Tennessee, ensure they are licensed. Check what other clients have said by reviewing online reviews and asking for references. Use the Tennessee Department of Commerce and Insurance's Verify tool to find or verify licensed home inspectors in the state.

Home appraisals objectively assess a property's value, which is important for both buyers and lenders. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median appraisal cost 2023 was $500.

A home appraisal differs from a home inspection. While an inspection evaluates a property's condition, a home appraisal determines its market value. Lenders require appraisals to ensure the loan amount does not exceed the property's worth. This step is part of the standard process of inspections and appraisals that safeguard both the buyer's and lender's interests.

Closing is the final step in buying a house in Tennessee, where the ownership officially transfers, and you receive the keys. Your lender must provide a closing disclosure document three days before the official closing. This document outlines loan terms, projected monthly payments and closing costs. Schedule a final walk-through with your real estate agent near closing day to confirm the property's condition meets your expectations.

Closing day involves reviewing and completing several documents to finalize your home purchase.

These include:

• Final loan application: This document verifies the terms of the loan, confirming details such as interest rate and loan amount. It is your last opportunity to ensure all information is accurate before proceeding.
• Deed transfer: This document officially transfers property ownership from the seller to you. It is a legal instrument that must be signed to complete the transaction.
• Promissory mortgage note: This note outlines your promise to repay the mortgage under the agreed terms. It includes details such as repayment schedules and penalties for late payments.
• Homeowners insurance in Tennessee: This insurance protects your new home against potential damages or losses. Find coverage options that suit your needs to ensure peace of mind as you settle into your new home.

Closing costs are the fees and expenses when finalizing a real estate transaction. In Tennessee, the average closing cost is $3,090, according to NAR. These costs include various fees:

• Appraisal fee: This fee covers the cost of having a professional assess the property's value.
• Title search and insurance fee: This fee ensures no legal claims against the property and protects against future disputes.
• Escrow deposit: This upfront payment covers property taxes and insurance.
• Prepaid costs: These include advance payments for items like homeowners insurance and property taxes.
• Other closing costs: These can include fees for credit reports, loan origination and recording the transaction with the local government.

If you are a first-time homebuyer, exploring the different first-time homebuyer programs in Tennessee can help you achieve homeownership faster.

Buying a house in Tennessee represented a long-term financial commitment. To help you navigate this journey, we answered some frequently asked questions about purchasing a home in Tennessee. This guide aims to provide clarity and support as you embark on your homebuyer journey.