Over the last decade, Tennessee home prices have risen at a rate that far outstrips the state’s median household income, causing housing affordability challenges that have been worsened by the pandemic. As a first-time homebuyer in Tennessee, however, there’s more hope than you might think. That help comes in the form of home loan, down payment, and closing cost assistance programs offered by state and local governments.
Before diving into the home buying process, it’s important to understand the options available to you. Read on to discover the eligibility and financial details of first-time homebuyer assistance programs in Tennessee.
Curious about a more accessible path to homeownership? Explore Our Rent-to-Own Homes in Tennessee.
Shopping for your first home in another state? Check out our full first-time homebuyer program guide here.
What Are the Requirements for First-Time Home Buyers in Tennessee?
The primary first-time homebuyer qualification for Tennessee is that you haven’t owned your primary residence within the past three years. However, that requirement could be waived if you’re buying property in a targeted area or if you’re a veteran.
For most homebuying assistance programs, you should also:
- Have a credit score of at least 640.
- Meet income and purchase price limits for the county where the home is located.
- Have a debt-to-income ratio that doesn’t exceed 45%.
- Complete a homebuyer education course.
2023 Tennessee Home Buyer Statistics
Want to know more about Tennessee’s housing market? Here’s a look at some recent Tennessee home buying statistics:
- Home prices in Knoxville, Chattanooga, Memphis, and Nashville are all projected to increase by at least 5% in 2023.
- The median home value from 2017–2021 (the most recent data available at the time of writing) was $193,700.
- Based on that median, you’d need $6,779.50 as a 3.5% down payment – or $38,740 for a 20% down payment.
- Similarly, a 5% increase in the median Tennessee home value would bring that cost to $203,385.
Tennessee Housing Development Agency Programs
The Tennessee Housing Development Agency (THDA) is the entity that offers state-backed home buying assistance programs. Their Great Choice Home Loans program offers favorable terms on federally backed home loans for low- to moderate-income first-time home buyers.
Participation in the Great Choice Home Loans program makes you eligible for Great Choice Plus, which offers second loans for down payment and closing cost assistance. As a requirement of this program, you must complete a home buying education course, which helps you determine your budget, refine your home search, learn about home maintenance, and can greatly reduce the risk that you’ll experience foreclosure.
Great Choice Home Loans
Great Choice Home Loans are 30-year, fixed-rate mortgages that work with government-backed loans, including FHA, USDA-RD, VA, and uninsured conventional mortgages. If you don’t meet the credit requirements for a Great Choice loan, a THDA-approved counselor can help you develop a plan to raise your credit score until you meet the 640 FICO® score minimum.
Great Choice Plus Down Payment Assistance
One of the major benefits of a Great Choice Home Loan is that it qualifies you to use one of the Great Choice Plus down payment assistance options: Great Choice Plus-Deferred or Great Choice Plus-Amortizing.
The deferred option is a 30-year second mortgage of $6,000 that doesn’t require monthly payments and is forgiven after the 30-year period. If you sell your home or refinance your first mortgage before then, though, you’ll be required to pay the second mortgage balance.
The amortizing option is also a 30-year second mortgage, but you’ll make monthly payments to repay it. It offers up to 6% of your home’s purchase price in assistance, with the same interest rate as your Great Choice Home Loan mortgage. If you sell or refinance your home before then, you’ll owe the second mortgage balance.
Homeownership for Heroes
If you’re a police officer, paramedic, EMT, firefighter, veteran, or active-duty military personnel, you may be eligible for the Homeownership for Heroes program. It offers a Great Choice Home Loan with a special reduced interest rate, waived first-time homebuyer requirements for eligible military members and veterans, and up to 100% financing for VA or USDA-RD loans.
If you have an FHA loan, you can borrow up to 96.5% of the home’s price and use Great Choice Plus for down payment assistance. Credit score, income, and purchase price limitations do apply.
City Programs Throughout Tennessee
Great Choice options not quite right for you? Several localities throughout Tennessee offer homebuying and down payment assistance programs of their own, which may work better for your unique situation and needs.
Memphis Down Payment Assistance Program
The City of Memphis’s Down Payment Assistance (DPA) and Homebuyer Incentive Programs offer up to 10% of the purchase price (up to $10,000 maximum) in assistance when buying property within the city limits. For Citywide DPA programs, your income must be below 81% of the area median, and you can purchase anywhere in the city.
Homebuyer Incentive Programs for police, firefighters, and teachers have no income or neighborhood restrictions, but other qualifications may need to be met. The Homebuyer Incentive Program for Citizens has an income cap of 200% of the area median, and you must purchase a home in one of 15 designated areas.
Knoxville Down Payment Assistance Program
Planning to purchase a home in Knoxville? If it was built by (or will be built by) one of three housing development organizations, you may be eligible for Knoxville’s Downpayment Assistance Program. Your income should be at or below low-income limits based on your household size.
Clarksville First-Time Homebuyers Program
Clarksville uses funds from the U.S. Department of Housing and Urban Development to provide down payment and closing cost assistance to low-income households. To qualify, you should make no more than 80% of the area median income.
Down payment assistance will be given as a 10-year, low-interest loan. Closing cost assistance is provided through zero-interest loans that are forgivable after 10 years, as long as you remain in the home.
Find Out How Divvy Offers a More Affordable Way to Get Into Home Ownership
When traditional homebuying approaches aren’t viable options for you, Divvy provides a solution. Our rent-to-own program allows you to live in the home you want to buy and make monthly rent payments, part of which can go toward savings for your down payment. After a few years, you could purchase the home with your down payment savings and traditional first-time homebuyer financing options, or you can elect to walk away with your savings, less a surrender fee and any other unpaid costs.
Divvy allows you to rent a home of your choice (provided it meets our quality standards and your approved budget), all with more flexibility and relaxed requirements than a traditional mortgage. To qualify, you typically need only a 550 credit score or higher and three months or more of employment history. Additionally, you won’t have to put down a hefty downpayment – your monthly rent is your savings towards a downpayment – and you’re not locked into any rates prior to the purchase of your home.
We’re built on the belief that homebuying shouldn’t be exclusive to those with perfect credit and finances. Let us help you find your first Tennessee home.
Note: Divvy is not affiliated with the first-time homebuyer programs mentioned in this article. Be aware that requirements for these programs may change. We recommend consulting with a lender or real estate agent when evaluating first-time home buyer programs.
Tennessee First-Time Home Buyer FAQs
How much do first-time homebuyers have to put down in Tennessee?
Homebuyers will typically need to put 3.5% of the home’s purchase price as a down payment. However, there are several down payment assistance grants and loans you could be eligible for that can help cover these costs. If you work in a public service profession, you may be able to get 100% financing through the Homeownership for Heroes program.
What credit score is needed to buy a house in Tennessee?
For programs offered by the THDA, you should have a credit score of 640 or higher. If you choose to work with Divvy, you can qualify with a score as low as 550.
How much is the first-time homebuyer’s grant in Tennessee?
The Great Choice Home Loan program lets you borrow up to 96.5% of a home’s value. The Great Choice Plus down payment assistance options offer $6,000 as a deferred, forgivable loan or 6% of your home’s purchase price as a second 30-year mortgage. Some cities may offer more in down payment assistance for qualified buyers, such as Memphis’s $10,000 assistance options.
- Federal Reserve bank of St. Louis Economic Research (https://fred.stlouisfed.org/series/TNSTHPI)
- Federal Reserve bank of St. Louis Economic Research: Median Household Income in Tennessee
- Tennessee Housing Development Agency: Mortgage Program Eligibility Requirements & Conditions
- Tennessee Housing Development Agency: Current Targeted Counties (https://thda.org/pdf/Targeted-Counties-Tracts.pdf)
- Tennessee Housing Development Agency
- Realtor.com: 2023 Housing Market Forecast and Predictions
- U.S. Census Bureau (https://www.census.gov/quickfacts/fact/table/TN/HSG495221#HSG495221)
- Tennessee Housing Development Agency: Homebuyer Education
- Tennessee Housing Development Agency: Great Choice Home Loans
- Tennessee Housing Development Agency: Down Payment Assistance
- Tennessee Housing Development Agency: Home Ownership for Heroes
- City of Memphis Down Payment Assistance Program (https://www.memphistn.gov/government/housing-and-community-development/homeowners-homebuyers-and-renters/down-payment-assistance-program/)
- City of Knoxville: Downpayment Assistance Program
- City of Clarksville First-Time Homebuyers Program
- City of Clarksville Down Payment Assistance Program