Buying your first home is a big step, and if you’re thinking about buying a home in Tennessee, you’re in a good position. The state offers several special programs that help first-time homebuyers get into homeownership faster, pay less down payment, and save more in the long run.
Who qualifies for Tennessee’s first-time homebuyer programs?
Many people assume that because they’ve already owned a home, they’re not eligible; but the definition of “first-time homebuyer” is broader than you might think. In Tennessee, you’re generally considered a first-time homebuyer if you haven’t owned a primary residence in the past three years.
You may also be eligible if you previously owned a home with your spouse or common-law partner and are now planning to buy a home in your own name.
Major Programs Available in Tennessee
THDA Great Choice Home Loan
Tennessee’s flagship program for first-time homebuyers is the Great Choice Home Loan. This program features a fixed-rate mortgage with a 30-year repayment period and can be combined with down payment assistance to help reduce the initial cost of buying a home.
HHF Down Payment Assistance
Qualified buyers can receive up to $15,000 in down payment assistance through the Hardest Hit Fund Down Payment Assistance program. In eligible areas, this assistance is fully forgiven after five years of homeownership and does not need to be repaid.
Mortgage Credit Certificate (MCC)
A Mortgage Credit Certificate (MCC) is a great way to get a federal tax credit of up to $2,000 per year. A tax credit, unlike a tax deduction, reduces your tax bill directly and by the same amount, and this benefit can last for the rest of your mortgage term.
“Federal loan programs continue to be popular with Tennessee buyers because they offer flexible eligibility requirements and low down payment options.
FHA loans are ideal for buyers with little savings or who are building their credit history.
Qualified veterans and military families can take advantage of VA loans that do not require a down payment or private mortgage insurance.
Many eligible rural communities in Tennessee have USDA loans with no down payment financing.
Most of these programs can be combined with Tennessee’s subsidy programs for even greater savings.
Eligibility Standards
Credit Score
Most Tennessee Housing Development Agency programs require a minimum credit score of 640. If your score is lower, you may still qualify through an FHA loan. With a score of 580 or higher, you’ll qualify for a 3.5% down payment.
With a credit score of 500 to 579, you may qualify for a 10% down payment. If your score is currently below the program’s requirements, consider reducing your credit card balances, correcting any errors on your credit report, and avoiding new debt before applying.
Income Limits
Income limits vary depending on where you bought your home and your household size. Examples of income limits include:
- Davidson County (Nashville): Up to $160,670 for households of three or more
- Many rural counties: Around $92,300 to $106,145 depending on household size
Most programs prefer a maximum debt-to-income ratio of 45%. The DTI ratio compares your monthly debt, including future mortgage payments, car loans, student loans, and credit card payments, to your income. A lower DTI generally increases your chances of being approved and may help you get better loan terms.
Job Security
Lenders tend to want to see a steady income from borrowers. Most borrowers will need to have about two years of work experience in the same line of business or industry. If you’re self-employed, have two years of personal and business tax returns and up-to-date income statements ready. In some cases, you may need to provide additional business documents.
Requirements for the Property
Not all properties are eligible for first-time homebuyer programs. Usually the home has to be your primary residence. Vacation homes and investment properties aren’t eligible either. Also, the purchase price must be within the limits established by the THDA for each county.
Tennessee’s Best First-Time Homebuyer Programs
For many buyers, this is the best place to start. The Great Choice Home Loan combines a fixed mortgage rate with optional down payment assistance, helping buyers reduce the cash needed at closing.
THDA Great Choice Home Loan
The most widely used state program. It pairs a 30-year fixed-rate mortgage at competitive Tennessee mortgage rates with optional down payment assistance.
- Down Payment Assistance: You can borrow up to $6,000 as a second mortgage with no interest, paid back over 15 years.
- Eligibility: A minimum credit score of 640, income within THDA, and a home purchase price within the program’s caps are required.
- How to apply: Applications are submitted through THDA-approved lenders to review your eligibility. They’ll also explain available options and guide you through the approval process. Since the mortgage rates change daily, ask your lender for the latest THDA rate information before making a decision.
Hardest Hit Fund Down Payment Assistance (HHF-DPA)
This program can significantly reduce the amount of money you need upfront. Qualified buyers in designated ZIP codes throughout Knoxville, Chattanooga, and other targeted areas may receive up to $15,000 in down payment assistance.
The property must serve as your primary residence and fall within an eligible ZIP code. Check qualifying areas on the THDA down payment assistance page.
Mortgage Credit Certificate (MCC)
Many buyers overlook the Mortgage Credit Certificate, yet it can provide thousands of dollars in savings over the life of the loan. The MCC allows eligible homeowners to claim a federal tax credit equal to 25% to 50% of their annual mortgage interest, up to a maximum of $2,000 per year. Unlike deductions that reduce taxable income, a tax credit directly reduces the taxes you owe. For long-term homeowners, this benefit can add up to substantial savings year after year. Ask your lender whether the MCC can be included with your mortgage package.
FHA, VA, and USDA Loans
In addition to traditional financing, there are a few federal programs that offer special benefits to Tennessee’s residents.
FHA Loans open the door to homeownership for those building credit, with only a 3.5% down payment and a credit score of 580.
VA Loans are a tremendous value for military families, including veterans, active duty,y and eligible surviving spouses, with no down payment, no PMI, and the lowest possible interest rates.
USDA Loans: No down payment homeownership financing in rural Tennessee, depending on your income and the program requirements for the property.
While these federal options are available, you can also use Tennessee state assistance programs to reduce the amount of your upfront investment even more. Talk to your lender to discover how these combined benefits can work for you.
