How to Buy a House in Tennessee: A Homebuyer’s Guide

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Edited byLilian Mironga
Contribution by1 expert
Edited byLilian Mironga
Contribution by1 expert

Updated: December 15, 2023

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Buying a property in Tennessee comes with perks like southern charm, low cost of living and tax benefits. Additionally, homes in this state are relatively cheaper, costing an average of $309,460. The price has increased by 22.7% in one year. Despite this, it is still on the affordable side of property prices in the U.S.

According to studies, homeownership is in steady decline, but it is still possible to find a place to call your own and reap its many benefits. MoneyGeek covers the basics of homeownership in Tennessee, from choosing a location, mortgage and required documentation to increase your chances of owning a home.

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Choose an Ideal Location

The real estate market is a complex balance of many factors. Location affects the cost of homes the most. But neighborhood culture, cost of living, crime rate, amenities and more also play a role in determining their overall prices. Locating a home that meets your needs can be challenging if you need to gain knowledge of each area's unique characteristics.

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WORK WITH A REAL ESTATE AGENT

A buyer's agent is on top of any new inventory that hits the market and is immediately in contact with their clients. Agents help buyers get into a good position to get the home they are eyeing while answering questions that clients might have during the purchasing process — from browsing the market to closing the deal.

Here are some qualities that you can look out for when finding an agent:

  • Knowledgable and licensed
  • Proactive
  • Reputable

Buying your first home can be daunting, but the right real estate agent can guide you through the transaction. It helps to ask for referrals from trusted people in your life and interview at least three agents before settling on one.

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CALCULATE THE COST OF LIVING

The city or county you live in can influence your living expenses just as much as the cost of your home itself. Therefore, before you consider applying for a mortgage, it’s wise to calculate how much you should expect to pay for:

  • Food
  • Health care
  • Utilities (like electricity and water)
  • Income, property and real estate taxes
  • Public transportation costs
  • Car and medical insurance rates

Feel free to use MoneyGeek’s cost of living calculator so you can determine an estimate of how much you might need. Also, factor in additional costs if you will be moving with family.

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CONSIDER AFFORDABLE NEIGHBORHOODS

If Tennessee is outside your budget, you can still buy a home in the state by searching for affordable neighborhoods. Considering areas around the popular neighborhoods can present more affordable homes.

It is important to note that less costly neighborhoods also present cons. For example, if you choose to live in the suburbs, it may be cheaper and have better schools, but it may limit your access to social amenities such as malls and hospitals.

If you pick a less popular city, you may land a spot in a diverse and culturally rich community, but it may also give you smaller properties to choose from and a higher cost of living. Memphis and Germantown present some of the most affordable cities to live in.

Calculate Mortgage Rates

You can ensure you get the best mortgage rates by understanding your options. Different mortgage products have different rates. The one that is right for you will depend on your income, credit history, debt-to-income ratio and more. Asking lenders to quote you on several different types of loans can help you find the most competitive rates.

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SEE YOUR MORTGAGE OPTIONS

Rates differ according to mortgage type. That is why it's important to research and check with lenders to help you see what options you have for your financial state. It can differ according to an applicant's credit score, military involvement and other factors.

See the average interest rates for home loans in Tennessee:

Some loans are only available for candidates who meet specific requirements, like VA loans for military veterans and active members.

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USE A MORTGAGE CALCULATOR

A mortgage calculator can help you determine how much you'll pay back for a mortgage. That's important if you want to figure out how much money you need to make monthly toward your mortgage and other financial obligations.

Our mortgage calculator will help you determine the amount you can borrow at different interest rates. We also have an FHA vs. conventional mortgage calculator to see which loan type is best for you. After you get an estimated rate, you should compare different loan options to find the one that best suits your needs.

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KNOW YOUR QUALIFICATIONS

Depending on your financial profile, you'll likely get different mortgage rates and terms. Lenders may consider the following:

  • Credit score: Your credit score is a figure between 300 and 850, representing your credit history. A good credit score can make it easier to get a mortgage because it shows you've been responsibly paying bills on time and borrowing money. The higher your credit score, the better your chances of getting approved for a loan at a reasonable interest rate.
  • Income: Mortgage lenders want to know that you have enough income to cover your monthly expenses, including housing costs. Lenders may prefer you to have multiple sources of income over one source alone. That's because they can see how well you manage money over time by comparing the two sources against each other. If one source of income were to disappear suddenly due to unforeseen circumstances (for example, a job loss), this also helps lower lender risk.
  • Down payment: The amount of cash you have saved toward your down payment is significant to lenders because they want to make sure you will afford to pay them back. The larger your down payment is, the more likely you'll get approved for a loan with better terms.

Prepare Down Payment Requirements

Down payment is a major factor in determining your loan's total cost. Generally, the more cash you can put down, the less you'll pay each month. A typical mortgage company will ask for at least 20% of the home's purchase price upfront, though it varies from lender to lender.

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DETERMINE DOWN PAYMENT REQUIREMENTS

In conventional home loans, lenders typically want you to have a 20% deposit. However, different loan options allow you to get a mortgage with less than 20% down, like VA and USDA home loans that require no down payment.

People with good credit and an income that meets the requirements can take advantage of these programs to buy a home in Tennessee. Additionally, people who put down more money when buying a house will pay less each month on their mortgage.

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CALCULATE MORTGAGE INSURANCE

Mortgage insurance or private mortgage insurance (PMI) is a type of insurance policy required by most conventional mortgages with less than 20% down. The purpose of mortgage insurance is to protect the lender in case a borrower defaults on their loan.

Here's a rundown of mortgage loans that require a PMI:

  • Conventional loans: PMI is required if the down payment is less than 20%. Lenders take into account the borrower's profile in determining rates.
  • FHA loans: PMI is not a requirement for FHA loans, but you will likely need to pay an upfront mortgage insurance premium (MIP) instead.
  • VA loans: PMI is not a requirement.
  • USDA loans: PMI is not a requirement, but you may need to pay a guarantee fee.

You can pay mortgage insurance monthly, typically through a small addition to your mortgage payment or in one lump sum at closing.

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DOWN PAYMENT ASSISTANCE PROGRAMS

Various government and non-profit organizations offer financial assistance programs in Tennessee. These organizations help people buy homes by providing them with financial aid for the down payment and closing costs.

The following are some examples of programs that offer this kind of aid:

  • Tennessee Housing Development Agency's (THDA) Great Choice and Great Choice Plus: Great Choice's 30-year first mortgage loan offers a low fixed rate, whereas Great Choice Plus provides two options for down payment assistance. In the deferred option, you receive a 0% interest rate second mortgage with payments deferred until the end of the 30-year term, when it is forgiven. With the amortizing option, you receive 6% of the sales price in a second mortgage loan on your home, which will be paid in monthly installments over 30 years at an interest rate equal to the first mortgage rate. You may also use the loan to pay closing costs.
  • THDA's Homeownership for the Brave: This program can be in conjunction with a VA loan. It gives military members or spouses a ½% reduction on THDA's Great Choice first mortgage loan.

Get Pre-Approved for a Mortgage

Whether you're a first-time homebuyer or just looking to move up to a bigger place, it's always good to know if you could get approved for a loan on the property you're interested in.

Pre-approval means that your lender has thoroughly reviewed your financial information and agreed to give you a mortgage of a certain amount at a particular interest rate. Pre-approval may seem synonymous with prequalification. However, prequalification only means that a lender has looked at your finances and decided that you are eligible to apply. Therefore, there's yet to be a commitment.

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GATHER NECESSARY DOCUMENTS

When applying for a mortgage, your lender may require specific documentation to prove certain facts about you and your finances.

It's typically a good idea to gather everything you need before starting the application process to ensure your paperwork is organized and complete from the beginning. This way, when submitting your information, you won't be scrambling last minute for documents.

The documents that lenders typically require for various types of loans include the following:

  • A valid driver's license
  • Paycheck stubs
  • Bank statements showing your most recent three to six months of transactions
  • Three years of tax returns with W-2s

Mortgage lenders may also require additional documentation on top of what the law requires. Your lender will tell you exactly what documents you need to provide, but it's best to research or ask them early on.

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TIME YOUR PRE-APPROVAL

Pre-approval allows you to see how much you qualify for and compare that amount to the house prices in your area. Usually, you can receive a pre-approval letter within 10 days of application. The letter is usually valid for 30 to 60 days, depending on the lender.

Pre-approval phase is also an excellent time to consider factors that could increase your costs — like closing costs, down payment or higher interest rates. Then assess how they might affect your ability to make your monthly mortgage payment if they come up during the approval process.

If you have doubts about whether your income or other financial situations will change, talk to your lender about this too. You may need to work with them on a plan to make sure you can still afford your monthly payments, even if things change in the future.

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RECEIVE PRE-APPROVAL LETTER

A pre-approval letter is a document from a lender stating the amount they are willing to lend you to purchase a home. It doesn't guarantee you a loan approval or that the terms of your loan will be the same. However, the letter does show how much you can afford to borrow and is usually required by sellers when purchasing homes listed for sale.

You may receive several letters from different lenders, but they are only as good as their validity dates, usually 30 to 60 days. In this regard, it's best to prepare documents as soon as possible to take advantage of good offers.

Conduct a Home Inspection

Buying a home is a huge investment, so it's not surprising that you might feel anxious about the purchase and want to ensure things are as they seem.

However, you need to know just how many potential issues can come with a house and its systems. A professional home inspection can give you the peace of mind that you're getting exactly what you expect, and it's worth it. The last thing you want is to move into your new home only for something serious to go wrong later.

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CONTACT A LICENSED INSPECTOR

While it's true that the seller is responsible for disclosing any known defects in the house, it's still a good idea to hire a licensed home inspector to check everything before you sign on the dotted line. A licensed home inspector will thoroughly examine every part of the property, including:

  • Foundation
  • Roof and attic
  • Ceilings and floors
  • Walls and windows
  • Plumbing
  • Heating system
  • Electrical system

If something turns out wrong with the property, you'll be able to have it fixed before you move in.

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FOLLOW TENNESSEE-SPECIFIC INSPECTIONS

A home inspection is not a requirement before buying a home in Tennessee, but it's a good way to get a clear picture of the condition of a house before you buy it. Nonetheless, the state of Tennessee regulates home inspectors. Inspectors must be licensed by the state and follow the Tennessee Home Inspection Standards of Practice.

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GO THROUGH APPRAISAL

A home appraisal is a process by which a home's value is determined. It is done by a licensed professional. The analysis considers criteria like the living condition of the home, its size and location and the market's demand for similar properties to determine a fair price for the home.

The appraisal process is relatively simple. When you contact an appraisal company, they'll set up an appointment for someone to visit your house and provide a written estimate of its market value (also known as "fair market value" or FMV). The appraiser will then typically compare the house to other recently sold homes within the area with similar features and qualities.

Close Your Mortgage Loan

Closing on a mortgage loan is the last step in buying a home. This is when you and your lender sign the final documents that make you the owner of your new home.

Before you sign, however, you should be prepared with all of the information you will need to make sure everything goes smoothly and that you understand all of the mortgage loan terms. Note that there are also costs involved in the closing phase.

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SIGN ALL DOCUMENTS

The documents you're asked to sign will vary by lender and loan type, but most paperwork is standard across the board. This includes:

  • Mortgage note: A legal document detailing how much money you'll borrow and what interest rate your lender will charge. The mortgage note can run for 30 years or more and may be sold or transferred to another investor during that period.
  • Mortgage deed of trust: This document serves as collateral for your loan and gives the lender the legal right to foreclose on your home if necessary. If you miss payments, your lender can force a sale of your home at a public auction to recover losses from having issued the mortgage in the first place.
  • Disclosure statement: This document spells out all fees associated with closing on your home purchase, including appraisal and origination fees charged by real estate agents and brokers who helped facilitate your transaction. You'll also find details on any prepayment penalty or other restrictions on paying off your mortgage early.

It's essential to read all the fine print before you sign anything; if you don't understand what it says, ask your loan officer to explain it in simpler terms. If you need clarification, make sure you get it in writing so there are no surprises later.

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PAY CLOSING COSTS

Closing costs are fees homeowners pay when they purchase a home. These fees can include the following:

  • Loan origination fee: This fee is paid to the lender for processing your loan application, reviewing documentation and underwriting the loan. The amount varies depending on your financial situation and the type of loan you're applying for.
  • Credit report costs: When purchasing a home with financing, lenders usually require that you obtain a copy of your credit report from one or more major credit bureaus — like Experian, Equifax or TransUnion. The information helps review your payment history and check for any signs of fraud or identity theft. You may also be required to order a new credit report after getting approved for the mortgage so that lenders have up-to-date information about your financial situation before closing on the home loan.
  • Appraisal fee: This fee covers expenses related to having an appraiser come out and evaluate your property's value before finalizing your mortgage loan documents, which includes paying for their time.
  • Lender's attorney fee: This is an additional charge for legal services provided by attorneys representing lenders in foreclosure proceedings.
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COMPLETE YOUR HOME PURCHASE

Homeownership can be a long-term investment. It's worth the time and effort to be as prepared as possible before you take the plunge, so you can live a happy life at home without racking up debt. It's crucial to research potential locations, examine mortgage options, gather and organize documents, have the house inspected and consider financial obligations involved in the closing phase.

It helps to have a rainy day fund you can dip into during emergencies. This way, you won't end up using your mortgage payment in case of a job loss or house damage.

Tennessee Homebuying Details

While there are general steps you should take beforehand, the process will vary based on your state of residence. Before you jump into buying a home, it's wise to research state-specific regulations regarding purchasing a property.

Expect the following things when buying a home in Tennessee.

1

Enjoy lower taxes

Tennessee's property tax rate of 0.68% is low compared to other states. There is an opportunity for homeowners to save more in the long run, should they choose to settle down in this state.

2

Buyers get protection from unexpected house conditions

The Residential Property Disclosure Act requires sellers of residential real estate in Tennessee to complete a disclosure statement. It provides information on the condition of amenities, house age and hazards that affect the home.

3

Bask in the mild southern climate

Although Tennessee's weather is known for its variability, the general climate in the state is one that most people find comfortable. It presents warm summers and subdued winters, which is a welcome change for people coming from states with harsh weather. However, below-freezing temperatures still occur less often than in other states.

Frequently Asked Questions About Buying a Home in Tennessee

Homebuying is exciting, but it can also be overwhelming. There are many questions that homebuyers seem to ask quite often. Some of these questions arise before starting the homebuying process, during a house hunt, while writing a contract or closing the deal.

MoneyGeek answered the most frequently asked questions on how to buy a house in Tennessee.

What are the most important questions to ask when buying a house in Tennessee?
Is buying a house in Tennessee a good idea?
Is it wise to buy a house in Tennessee in 2023?
How much income do I need to buy a house in Tennessee?
How much is property tax in Tennessee?
Which Tennessee city is the cheapest to buy a home?
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