Tennessee First-Time Home Buying Assistance Programs & Grants for 2024

Tennessee First-Time Home Buying Guide

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    By Walecia Konrad

    (Last Updated – 03/2024)

    It’s a long journey through the 440-mile length of Tennessee. That’s why the Volunteer State is divided into three Grand Divisions — East Tennessee, Middle Tennessee, and West Tennessee — each with a unique personality and real estate market.

    East Tennessee is square in the Appalachian Mountains and is home to Knoxville and Chattanooga, the state’s third- and fourth-largest cities. The rolling hills of the middle area are anchored by Nashville, Tennessee’s largest city and the capital. The western division slides into the flatlands of the Mississippi River and is home to the inimitable Memphis.

    Home prices in Tennessee rose 5.1% between February 2023 and 2024, hitting a median price of $368,100, according to Redfin. That’s a large number but still more affordable than in many other states. Plus, Tennessee offers a robust first-time homeowner assistance program for mortgages and down payments.

    Who Is Considered a First-Time Homebuyer in Tennessee?

    Like many states, Tennessee follows the federal government’s definition of first-time buyer as someone who has not owned a home in the past three years. However, the Tennessee Housing Development Agency does not require active-duty military members and veterans to be first-time borrowers to obtain a home mortgage loan through its Homeownership for the Brave program. In addition, in several designated counties and targeted areas of the state, Tennessee Housing program borrowers may be repeat homeowners.

    If you’re a first-time homebuyer who is not sure where in the state you’d like to live, take a look at a list of the best affordable places to live in Tennessee.

    Recommended: First-Time Homebuyer Guide

    4 Tennessee Programs for First-Time Homebuyers

    First-time homebuyers can find help through the Tennessee Housing Development Agency’s Home Loan Program. Down payment assistance is also part of the agency’s menu. Here’s a closer look.

    1. Great Choice Home Loan Program

    This program offers conventional, FHA, VA, or USDA 30-year fixed-rate loans to first-time homebuyers. Interest rates vary based on the market and the mortgage lender. Down payment assistance is available for FHA or USDA loans.

    To qualify, borrowers need to make a 3% down payment for conventional loans and a 3.5% down payment for FHA or USDA loans. Income and purchase price limits apply, depending on the county and household size. Buyers who are not first-timers are also able to participate in this program if they are qualified military buyers or are buying in certain targeted areas.

    The housing agency requires a minimum FICO® credit score of 640 for everyone on the loan application and completion of a home education course.

    2. Homeownership for Heroes

    Available to active military service members including the National Guard, as well as veterans, law enforcement officers, EMTs, paramedics, and firefighters this program provides for a 30-year loan at reduced interest rate.

    Applicants must have a minimum credit score of 640, meet the same income and purchase price limits as in the Great Choice program, and complete a homebuyer education course if using down payment assistance. They may, though, borrow up to 100% of a home’s purchase price with a loan backed by the Department of Veterans Affairs.

    3. Great Choice Plus: Help With a Down Payment or Closing Costs

    This is Tennessee Housing’s down payment assistance program, to be used with the Great Choice mortgages. There are two options. The deferred option offers a forgivable second mortgage for $6,000 to be used for down payment or closing costs. The loan has a 0% interest rate, and payments are deferred until the end of the 30-year term, at which time the loan is forgiven. If you refinance or sell, the loan is due in full.

    The amortizing option provides 6% of the sales price to be used for down payment or closing costs. This second mortgage is repaid in monthly payments over 30 years at an interest rate that is the same as your first mortgage rate.

    Borrower requirements are the same as they are for the Great Choice Program.

    4. Local First-Time Homebuyer Programs

    Local housing initiatives may offer help with down payments, closing costs, and other assistance for first-time buyers in certain areas. The City of Clarksville, for example, has a program for first-time homebuyers.

    Recommended: Understanding the Different Types of Mortgage Loans

    How to Apply to Tennessee Programs for First-Time Homebuyers

    The Tennessee Housing Development Agency website contains clear descriptions and requirements for its mortgage and down payment assistance programs available to first-time homebuyers in the state. The agency does not lend directly, but you can find a list of approved lenders so you can compare interest rates, fees, and other costs. This is particularly important for newbie homebuyers, who may be unfamiliar with the process.

    First-time buyers can also find links to approved homebuyer education courses , which are required for participation in most of its programs.

    Homebuyer education classes can help buyers understand how much mortgage they can afford and what monthly payments they can expect.

    In addition, the THDA website provides a list of approved credit counselors who may be able to help potential borrowers who fall below the required credit score of 640.

    Federal Programs for First-Time Homebuyers

    Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.

    The mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.

    Federal Housing Administration (FHA) Loans

    The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the FHA loan program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers, who typically need FICO® credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

    In addition to examining your credit score, lenders will look at your debt-to-income ratio (DTI, your monthly debt payments compared with your monthly gross income). FHA loans allow a DTI ratio of up to 50% in some cases, vs. a typical 45% maximum for a conventional loan.

    Gift money for the down payment is allowed from certain donors and will be documented in a gift letter for the mortgage.

    FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years. For a $300,000 mortgage balance, upfront MIP would be around $5,250 and monthly MIP, at a rate of 0.55%, would be around $137. You can learn more about these loans, including FHA loans for refinance and rehab of properties, by reading up on FHA requirements, loan limits, and rates.

    Freddie Mac Home Possible Mortgages

    Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.

    The Home Possible mortgage is for buyers who have a credit score of at least 660.

    Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.

    Fannie Mae HomeReady Mortgages

    Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.

    For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site .

    Fannie Mae Standard 97 LTV Loan

    The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.

    Department of Veterans Affairs (VA) Loans

    Active-duty members of the military, veterans, and eligible family members may apply for loans backed by the Department of Veterans Affairs. VA loans, which can be used to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. Most borrowers pay a one-time funding fee that can be rolled into the mortgage.

    Another positive aspect of VA loans is that they do not require private mortgage insurance (PMI) for borrowers who make a down payment of less than 20%. And they have more flexible credit score requirements. In some cases, even those who have previously been in foreclosure or bankruptcy can qualify.

    Borrowers applying for a VA loan will need a Certificate of Eligibility from the VA so make sure to review a guide to qualifying for a VA loan as a first step in the process.

    Native American Veteran Direct Loans (NADLs)

    Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. The VA requires no mortgage insurance, but it does charge a funding fee.

    US Department of Agriculture (USDA) Loans

    No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers pay an upfront guarantee fee and an annual fee that serves as mortgage insurance.

    The USDA also directly issues loans to low- and very low-income people. For loan basics and income and property eligibility, head to this USDA site .

    HUD Good Neighbor Next Door Program

    This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.

    First-Time Homebuyer Stats for 2024

    •   Median home sale price in Tennessee: $368,100

    •   3% down payment: $11,043

    •   20% down payment: $73,620

    •   Percentage of buyers nationwide who are first-time buyers: 32%

    •   Median age of first-time homebuyers: 35

    •   Average credit score (vs. average U.S. score of 714): 705

    Financing Tips for First-Time Homebuyers

    In addition to federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:

    •  Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.

    •  Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.

    •  401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.

    •  State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.

    •  The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.

    •  Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.

    •  Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.

    The Takeaway

    Tennessee has a streamlined state program for first-time homebuyers who meet income limits and credit qualifications. Other first-time buyers may opt to look into federally insured or conventional mortgages on their own to unlock the door to homeownership.

    Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

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    Should I take first-time homebuyer classes?

    Yes! Good information is key to a successful home-buying experience for newcomers, who can easily be overwhelmed by the process of applying for a mortgage and purchasing a home. First-time homebuyer classes can help. Indeed they are required for some government-sponsored loan programs.

    Do first-time homebuyers with bad credit qualify for homeownership assistance?

    Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores. And often, interest rates and other loan pricing are competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications.

    Is there a first-time homebuyer tax credit in Tennessee?

    Not at present, though many homeowners can still deduct home mortgage interest on their federal taxes.

    Is there a first-time veteran homebuyer assistance program in Tennessee?

    Yes. Tennessee has a particularly robust program for active military service members and veterans called Homeownership for Heroes. It offers an interest rate discount on a mortgage that can be paired with down payment assistance, if needed. In addition, Tennessee veterans may find options in the federal VA loan programs listed above.

    What credit score do I need for first-time homebuyer assistance in Tennessee?

    Programs administered by the Tennessee Housing Development Agency require a credit score of 640 or above. To help achieve this goal, the agency provides a list of credit counselors. In addition, there are other private, state, and federal loan programs that borrowers with lower scores may be able to access.

    What is the average age of first-time homebuyers in Tennessee?

    The Tennessee age is hard to pin down, but the average age nationally is 35.

    Photo credit: iStock/f11photo

    *SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

    ¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

    †Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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