First-Time Homebuyer Programs in Tennessee

The process of purchasing your first home can be overwhelming. Luckily, Tennessee has multiple programs for first-time homebuyers.

MoneyGeek’s guide references zero-down-payment and low-down-payment loan programs. We also outlined first-time homebuyer programs in Tennessee so you can determine the best option for your specific needs.

When you’re shopping for your first home, an excellent first step is calculating costs. Usually, a mortgage down payment will be the greatest cost. Plus, it affects your mortgage.

Many first-time homebuyers need assistance to make owning a home their reality. The down payment is typically 20% of your home’s total cost, impacting your monthly mortgage payments thereafter. This down payment may be feasible for some. For others, it’s not. Consider a homebuyer assistance program to secure a cheaper rate.

Tennessee has USDA, VA, conventional, FHA and FHA 203(k) loans. The state also has programs only available to its residents, such as the Great Choice Home Loan program and other local homeownership programs per city or county.

Each loan program has its own set of eligibility requirements so be sure to check for which ones you qualify.

A zero-down-payment loan program allows first-time homebuyers to purchase a home even without a down payment. These zero-down loans are also known as USDA and VA loans, two government-sponsored programs.

A USDA home loan is issued through the U.S. Department of Agriculture and is made for those in eligible rural areas with low to moderate income. USDA loans are also more affordable than Fannie and Freddie loans.

A USDA loan has three programs:

• Single-Family Housing Direct Home Loan: Applicants with low and very low income can secure this mortgage type.
• Section 502 Guaranteed Rural Housing Loan: This loan is for low- and moderate-income applicants.
• Section 504 Home Repair program: With this program, homeowners can receive help financing home repairs, improvements and modernizations.

First-time homebuyers must live in the home as their primary residence, meet income requirements and be unable to meet another lender’s terms to qualify. Your property must be 2,000 square feet or less and located in a rural area with a population below 35,000.

VA loans are designed for eligible military members and their families. Issued by the U.S. Department of Veterans Affairs, a VA loan doesn’t require a down payment.

With a VA loan, you can finance different types of property, such as a single-family home, condominium or new home. Another option is to take out a construction loan to improve, rebuild or renovate.

The VA provides various home loans, including:

• Home purchase loan
• Cash-out refinance loan
• Interest Rate Reduction Refinance Loan (IRRRL)
• Native American Direct Loan (NADL)

To qualify for a VA loan, borrowers must meet property, credit score and income requirements set by the lender. Eligibility requirements vary by lender.

VA loans are full of perks for those who qualify, including:

• No down payment
• Lower closing costs
• Affordable rates and terms
• No early prepayment penalty fee
• No private mortgage insurance (PMI)

Keep in mind that you need to pay a one-time VA funding fee to get this loan type.

Tennessee homebuyers can also consider low-down-payment programs that help with purchasing a home even if their down payment is less than 20%. Conventional and FHA loans are two available options.

Conventional loans, also called Fannie and Freddie loans, are private mortgages. Conventional loans aren’t government-backed, and although they are more widely accessible, they have stricter lending requirements.

Borrowers should consider Fannie or Freddie loans when they cannot meet federal obligations such as taxes or student loans.

Conventional loans fall into two main categories:

• Conforming loans adhere to guidelines set by Fannie Mae or Freddie Mac.
• Non-conforming loans exceed conforming loan limits.

While the down payment for a home is typically 20% of its purchase price, some lenders only ask for 3%. However, in the latter case, you will need to purchase private mortgage insurance (PMI) to protect the lender if you default on your loan.

Depending on the lender, a conventional loan usually requires a 620 credit score and a debt-to-income ratio (DTI) of 45%. We recommend shopping around first to pick a lender to meet your needs.

FHA loans are ideal for individuals who have damaged or incomplete credit histories. An FHA loan is a low-down-payment mortgage that private lenders offer per the Federal Housing Administration (FHA) guidelines and policies.

Compared to other loan types, FHA loans are less stringent. It requires a minimum credit score of 500, a maximum DTI of 56.9% and a minimum down payment of 3.5%. An FHA loan has a fixed interest rate and repayment terms of 15 and 30 years.

Although standard, these aren’t the only requirements borrowers need to meet for an FHA loan. Your loan limits will vary based on your location (county and state). The Department of Housing and Urban Development (HUD) has an online tool to determine your maximum loan amount. In Tennessee, the FHA mortgage limit ranges from $420,000 to almost $980,000 for single-family homes in 2022.

An FHA 203(k) loan is a program where you get to finance a construction loan on top of your standard mortgage. It’s a dual-purpose loan that allows homebuyers to purchase and renovate older homes.

If you’re considering an FHA 203(k) loan, evaluate its two types:

• A standard 203(k) is designed for homebuyers needing to repair or remodel their homes extensively.
• A simplified 203(k) loan or limited 203(k) is for non-structural repairs and doesn’t usually exceed $35,000.

Please note that FHA 203(k) loans are only for homebuyers using the purchased home as their primary residence. The minimum down payment required is 3.5% for borrowers with a credit score of at least 580, and 10% for those with credit scores between 500 and 579. Additionally, a front-end DTI of at least 31% and a back-end DTI of 43% are required.

If you’re exploring options outside government-backed mortgages, Tennessee offers several first-time homebuyer programs to its residents.

The Tennessee Housing Development Agency (THDA) offers Great Choice Home Loans at a fixed interest rate and up to a 30-year repayment period. Tennessee borrowers with moderate income and a minimum credit score of 640 may qualify.

Another way to finance your home in Tennessee is through the Tennessee Housing Development Agency Housing Choice Voucher or "Voucher" program, which offers rental assistance to low-income households.

Tennessee homebuyers with low to moderate income may qualify if they need safe and affordable housing. Please note that the individual's income shouldn’t exceed 60% of the area median income (defined by the U.S. Department of Housing and Urban Development).

You can contact your local Tennessee Association of Community Action (TACA) agency for assistance with weatherization, low-income home energy assistance and HUD housing assistance programs.

The Housing Assistance Council has multiple rural housing loan programs so you can finance an existing property or construct a new home.

There are Tennessee county- and city-specific homeownership programs through the U.S. Department of Housing and Urban Development. One example is the Clarksville Housing and Community Development program that offers down payment and closing cost assistance for first-time homebuyers.

MoneyGeek answered commonly asked questions about first-time homebuyer programs to help individuals working towards homeownership in Tennessee.