Anyone who has ever tried to buy a home knows how daunting the process can be. You complete an application and hope you’re accepted, at which point the hard work begins. Once you’ve found the perfect house, you’ll be asked to submit copies of your past tax returns, as well as proof of income. If you run your own business or work as an independent contractor, you may face even more hurdles, including gathering profit and loss statements. Fortunately, there is help available. This guide will walk you through the process of getting a mortgage in Tennessee.

1

Check Tennessee Mortgage Rates

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Although mortgage rates can fluctuate from one day to the next, Tennessee’s rates are in line with the national average. Your own personal finances and credit history will affect your interest rate, but rates also rely heavily on where you live. Tennessee’s foreclosure rates are also within the national average, but with demand for homes above the national average and supply falling below, financial institutions have no shortage of interested homebuyers.

2

Help for First-Time Homebuyers in Tennessee

First-time homebuyers have access to the Tennessee Housing Development Agency (THDA), which provides 30-year, fixed interest rate mortgage loans to first-time homebuyers who qualify. However, before you can take advantage of this assistance, you’ll first be required to take a homebuyer education course, which is offered both online and in a classroom. The course covers basic mortgage concepts, budgeting, different mortgage types, and more. Once the course is complete, the THDA connects homeowners with a trainer who works one-on-one with the homebuyer throughout the purchase process.

Ralph M. Perrey, executive director for the THDA, points first-time homebuyers to its GreatChoiceTN service. In addition to mortgages, the TDHA also helps first-time homebuyers with the down payment through its Great Choice Loan Program. This provides funding for up to four percent of the down payment on an FHA, VA, USDA-Rural Development, or uninsured conventional loan. There is also a 15-year option called Great Choice Plus, which also comes with up to four percent down payment assistance for borrowers who qualify.

“Normally the tax-exempt loans have a first-time homebuyer requirement,” Perrey says. “Fifty-eight of Tennessee’s 95 counties have the first-time homebuyer rule waived. There are particular neighborhoods within the urban areas, as well, which are available on our website.

Need Financial Assistance? Options for First-Time Buyers in Tennessee

For an in-depth look at the financial help available to you in Tennessee, use the below tool.

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Housing Counselors in Tennessee

3

Understanding Tennessee Home Affordability

Several factors influence home prices, including home supply and local cost of living. Tennessee’s cost of living is considered among the lowest in the country, which is determined in part by house prices. The current housing shortage has driven home prices up slightly, as builders rush to create new homes to meet demand. The state’s low mortgage rates keep the housing market active, which means homes often sell at their asking price. In an environment where rates are high, buyers may wait for them to drop, which means sellers see their homes on the market for an extended period of time, forcing them to lower their asking price multiple times.


Mortgage Prices and How They Might Affect Monthly Payments

Metro Area Estimated Monthly Mortgage Payment* Q1 2016 (Change from Previous Year) 2015 Median Home Price 2014 2013
Chattanooga $718 $152,700 (+6.30%) $154,700 $139,700 $132,300
Knoxville $738 $157,000 (+5.20%) $157,200 $149,700 $146,700
Memphis $638 $135,800 (+2.80%) $147,000 $138,600 $129,400
Nashville-Davidson--Murfreesboro $962 $204,700 (+9.80%) $204,200 $183,000 $176,400

Source: National Association of Realtors Q1 2016 Metropolitan Median Area Prices and Affordability report.
*Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q1 2016 and a 30-year fixed mortgage with today’s rates.

4

How Much Can You Borrow in Tennessee?

Most homeowners apply for either an FHA or conventional loan, but both have their limits. In Tennessee, the limit for conventional loans is slightly lower than FHA, but both are more than enough to cover the median home price of $132,110 in the state. Below is a table that will show you the FHA and conventional loan limits in Tennessee, as well as other states.

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5

Experts Weigh In: Buying a Home in Tennessee

Ralph Perrey

Ralph Perrey is executive director of the Tennessee Housing Development Authority.

Randy Durham

Randy Durham is president of the Tennessee Association of Realtors.

How does Tennessee’s housing market compare to what it was like before the bubble?

Perrey

Where it stood before the crisis, we were on a little bit more solid footing than the nation as a whole. We were a little bit better than average as a state and that meant that actually our downturn happened sometime after the national downturn started. The exception is Memphis. Memphis actually suffered a deeper crisis than the state as a whole and it began earlier.

Durham

By many measures, the housing market was strong in Tennessee before the financial downturn, and it has recovered a long way but is still recovering in many parts of the state. There is definitely a shortage of inventory in much of Tennessee, which creates buyer frustration, and we were seeing that before too. We have buyers in certain price ranges who are sitting, waiting for something to come on the market.

What growth are you seeing in different areas of the state?

Perrey

We are experiencing growth in sales prices and declines in foreclosures and delinquencies and are ending up on solid footing. We only have one metropolitan area that is suffering declining home prices, Jackson. All of the other areas are experiencing housing increases.

Durham

Since the recovery started, we’ve seen a noticeable uptick in Tennessee’s overall housing market, much of it attributable to incredible growth in the state’s economy and job market. Just a few of many examples include Volkswagen coming to Chattanooga and the ancillary businesses that have arrived as a result, a boom in new-building construction in Middle Tennessee, and inspiring efforts to foster change in the Memphis area.

What advice would you have for Tennessee residents interested in buying their first home?

Perrey

We have set up a consumer webpage with our mortgage loan program name, GreatChoiceTN.com. There they will find three options: first time homebuyer, repeat homebuyer, military homebuyer. We suggest pre-purchase counseling and we point out a calendar where classes are already scheduled, or they can search by county. We also have a relationship with eHome America, so people can do their training online at their leisure.

Durham

We have seen the number of first-time homebuyers drop in recent years. For example, 2015 saw the second-lowest share of first timers since 1981. For a number of reasons, homeownership remains a distant dream for a lot of folks. I would tell a first-time homebuyer, especially in such a tight market with low inventory and many others looking to buy, to work with a REALTOR® who can help you identify the very best property for you at the right time.

6

Understanding Tennessee Closing Costs

Tennessee closing costs are similar to nearby Kentucky and Alabama. While origination fees may be similar to many other states, however, a New York homebuyer will pay double the attorney’s fees as one in Tennessee. Tennessee’s closing costs align with the national average, but its average third-party fees come in lower than in many other states. Before you start the loan application process, it’s important to know all of the fees involved and understand the average cost in your state. This guide offers a detailed, easy-to-understand explanation of each type of closing cost.

Rates from one county to the next can also influence closing costs. Third-party services may be more expensive in a large metropolitan county like Shelby or Davidson than they are in a less populated county like Rutherford or Cheatham.

Average Closing Costs in Tennessee

Average Origination
Fees
$1,033
Average Third-Party
Fees
$773
Average Total Closing
Costs
$1,806

Source: Bankrate’s 2015 survey of closing costs.

Mortgage Refinancing in Tennessee

Three Tennessee cities had the biggest refinance originations in country in the fourth quarter of 2015, including Nashville, Knoxville, and Memphis. The housing shortage has led many Tennesseans to remain in their homes and refinance, rather than searching for new homes. Whether they choose to remodel their existing homes or simply refinance for a better deal, meeting with a lender about refinancing could be a great alternative to trying to find a new home to buy in the current market.

Also encouraging refinancing activity in Tennessee are the low interest rates. Area residents who bought their homes when the interest rates were higher can capture savings by refinancing their mortgages under the new rates.

“We are at historically low bond rates and the mortgage rates are very near historic lows,” says David Bruce, home loan consultant with Aptus Lending. “For people at four percent, it would make perfect sense to refinance.”

Bruce also recommends a home equity line of credit as a more affordable alternative to refinancing, as well as first-time home loans. With so many people interested in refinancing, he urges people to consider all of the options available. A line of credit helps homeowners save on closing costs, as well as giving them a way to control their funds. Bruce has recently joined a company called Replace Your Mortgage, which provides education to homeowners on alternative options to traditional home loans.

Other Important Tennessee Homebuying Resources

Tennessee Housing Development Agency

The Homebuyers page on the THDA website offers information on its programs for first-time homebuyers, repeat homebuyers, and military homebuyers.

Habitat for Humanity of Tennessee

This organization uses volunteer labor to build low-cost housing to Tennessee residents. While financing isn’t available directly through Habitat for Humanity, the nonprofit advocates for accessible financing solutions for low-income families.

Metro Development and Housing Agency

MDHA specializes in helping Nashville residents find affordable housing through its program, including providing new construction and down payment assistance.

Knoxville’s Community Development Corporation

This housing and redevelopment agency for the Knoxville area creates housing for families, seniors, and disabled residents.

Memphis Housing Authority

For Memphis-area residents, MHA strives to create better communities through revitalization and housing options to those in need.

Tennessee Mortgage Lenders

Zillow provides this directory of the state’s top lenders based on reviews from previous customers. All licenses are verified with the Nationwide Multistate Licensing System & Registry (NMLS).

TN Department of Commerce & Insurance

Before you chose a real estate agent, verify that the agent’s license is current, and look for any actions or complaints. You can even see an agent’s continuing education courses through this search.

Tennessee Human Rights Commission

Those who feel as though they’ve been discriminated against as they search for a home can file a complaint through the Human Rights Commission.

Tennessee Department of Financial Institutions

This state agency regulates all of the lending institutions throughout Tennessee. Issues with financial institutions can be reported as a complaint here.

RealTracs

Nashville-area residents interested in searching for a home can enjoy direct access to the area’s MLS through this site.

Knoxville Area Association of Realtors

This organization’s member agents link their homes for sale on this site, which also provides a searchable database of open houses and commercial properties.

Updated: July 27, 2017