Guides

Tennessee First-Time Homebuyer Guide

Tennessee is nicknamed the Volunteer State. It’s known for its country music scene and diverse and beautiful geography, which includes parts of the Blue Ridge and Appalachian Mountains. Buying your first home in Tennessee is an exciting opportunity. Owning a home gives you space and is a reliable way to build generational wealth. The homebuying process can also be complex, but some many benefits and resources are available to first-time homebuyers.

Benefits of Being a First-Time Homebuyer

 Generally, a first-time homebuyer is anyone who has not owned a principal residence in the last three years. However, the U.S. Department of Housing and Urban Development (HUD) has various other circumstances under which homebuyers qualify as first-time homebuyers.

There are several benefits to being a first-time homebuyer. They include:

Down payment and closing costs assistance: Many down payment and closing costs assistance programs are available to first-time homebuyers. They can include government programs at both the state and local levels, programs offered by non-profit organizations, as well as lender-offered programs.

NAF offers an assistance program for first-time homebuyers called The Pathway to Homeownership. Specifically available to first-time homebuyers, eligible borrowers may receive up to $8,000* in financial assistance. This money can be used to help with your down payment, closing costs, or other costs depending on what you qualify for. It can also be combined with other DPA programs.

Educational resources: There are many educational resources available for first-time homebuyers. They are offered by a variety of organizations including government agencies like the HUD, private companies like Fannie Mae, and non-profit organizations.

Low or no down payments: Several loans may be available to first-time homebuyers that offer low or no down payments. These include FHA, VA, and USDA loans. Each loan comes with its own set of unique applicable qualifications in addition to the requirements of the lender offering them.

Qualifications for First-Time Homebuyers in Tennessee

Tennessee uses HUD’s definition of a first-time homebuyer. Someone is qualified as a first-time buyer if they have not owned a principal residence in the last three years. HUD sets the national standard for first-time buyers. They have more eligibility guidelines in addition to the three-year qualification, so make sure to check with your Loan Officer to see if you qualify as a first-time buyer.

First-Time Homebuyer Statics in Tennessee

Median home price in Tennessee: According to RealtyTrac, the median home price in Tennessee in November of 2023 was $307,084. 

Minimum down payment in Tennessee: 0% (USDA and VA loans), 3% (Conventional loans), 3.5% (FHA loans)

First-Time Homebuyer Assistance Programs in Tennessee

Tennessee is one of the states that offer the Mortgage Tax Credit Certificate, which is a first-time homebuyer tax credit program. This tax credit is calculated based on the amount of mortgage interest paid. The actual value depends on the homebuyer’s tax situation. 

The Tennessee Housing Development Agency (THDA) offers homebuying costs assistance, loan programs, and homebuyer education classes and counseling for first-time homebuyers. THDA does not offer loans itself but works with approved lenders to offer loan programs. Their Great Choice Plus program is designed to help borrowers with their down payment and/or closing costs.

There are also multiple programs and resources available at regional and local levels. These include grants for homebuyers in certain areas of Tennessee, neighborhood improvement initiatives, and other community-based programs to assist borrowers in their homebuying journey.

All programs have their unique qualifications and requirements, so make sure to research to find out what may be beneficial for your needs.

How to Apply for First-Time Homebuyer Loan Programs in Tennessee

The details of the application process for various loan programs are dependent upon which program and your specific needs and circumstances. However, some basic steps are the same across the loan application process. They are:

Step 1: Assess your finances

Your budget: Figuring out how much money you need to spend on a home is the first step on your homebuying journey. You’ll want to consider various things like the size and location of the home you want as well as things like down payment amount, interest rates, and homeowners insurance. Using a mortgage calculator can help you determine your budget as well as explore the effects of changing different factors like your loan term.

Credit: Your credit score is a significant factor in which loans you can qualify for as well as the terms and conditions of those loans. Different loans require different minimum credit scores. For instance, Conventional home loans require a minimum of 620, while an FHA loan can go as low as 500 with a certain down payment amount.

Lenders don’t just look at your credit score. They also view your credit and repayment history. They take into account how many lines of credit you have open as well, how consistently you make payments, as well as how much credit card debt you have overall. When you go to apply for a loan, you’ll want to check your credit score first, so you have a good idea of what to expect.

If your score is low, consider taking steps to raise it before applying for a home loan. NAF has partnered with Uqual, a loan readiness company, to allow borrowers to increase their ability to qualify for a loan. Uqual provides tools and resources, like credit management, to help borrowers build up their financial situation to improve lendability.

Debt-to-Income Ratio (DTI): Your DTI is your monthly income compared to your debt obligations each month. The most your DTI should be before factoring in a mortgage loan is 28%, while it should not exceed 50% when you include your mortgage loan. The DTI is one way to measure your ability to pay all of your bills and is often considered by lenders

Down payment: How much you will need for a down payment depends on the type of mortgage you have as well as your credit score when you apply. Loans with lower or no down payment required like FHA loans are typically popular among first-time home buyers. With an FHA loan, you only need 3.5% of the purchase price of the home as a down payment.

Here are the down payment requirements for other types of home loans:

• Conventional 97: 3%
• Conventional loans: 3% - 20%
• VA loans: no down payment
• USDA loans: no down payment

Step 2: What type of mortgage to get?

Fixed or Adjustable: "Fixed" vs. "adjustable" refers to the relationship between mortgage rates and your loan agreement. A mortgage rate is the interest rate you pay on your home loan. They change daily and are influenced by fluctuations in the market including current affairs, economic shifts, and government decisions.

A Fixed-Rate loan is a loan structure where the interest rate stays the same over the life of the loan. An Adjustable-Rate mortgage (ARM) has an interest rate that can adjust periodically depending on the terms of the loan.

Fixed-rate loans offer the stability of predictable monthly loan payments that won’t be influenced by changes in the market. This can make it easier for borrowers, particularly those buying a home for the first time, to budget and save since there won’t be any surprises.

Adjustable-rate loans offer higher upfront savings initially with lower introductory rates and smaller monthly payments. However, once the introductory period is over, the loan will continue to adjust periodically to different market rates over the life of the loan.

There are also many loan types available to borrowers. Each one has its qualifications and benefits. Check with your Loan Officer to see which loan might be right for your unique needs.

Step 3: Get a quote from your lender

Step 4: Get pre-approved for a mortgage 

Getting pre-approved for a mortgage is a must before you start looking for a home, which means speaking to a lender. Your Loan Officer will look over your credit and verify your income and assets according to your W2s, tax returns, bank statements, and paychecks.

Having your pre-approval letter is almost a requirement for a real estate agent to show you houses or have sellers accept any offers you may make.

This letter will likely include the maximum amount they will lend you. This does not mean that you have to spend the full amount. It is best to consider your options and not take out more than you are comfortable with.

Pre-approval can give you an idea of what types of houses may be in your budget before you start shopping. 

Step 5: Find a real estate agent

Finding a reliable real estate agent is a key part of the homebuying process. Take your time and choose an agent you are comfortable with. NAF Homes**, an affiliate of NAF, can connect you with local real estate agents and agencies in your area.

Step 6: Shop for your dream home 

Enjoy the process of shopping for the home of your dreams. Visit open houses, check listings, and drive through neighborhoods you’re interested in to see if anything catches your eye.

Step 7: Hire a home inspector

You’ll want to hire a home inspector before you make an offer on a home that you like. A home inspection will tell you what state the house is in and let you know of any needed repairs. They’ll examine the house in detail, looking for things like potential water damage, rotting wood, and other damage that will need to either be repaired before you close on the home or that you and the seller will come to an agreement on whose responsibility it is. Having your home inspected is often a lender requirement for loan approval. 

Step 8: Be prepared to make an offer

When preparing to make an offer on a home, you’ll need to keep several factors in mind. Consider your budget and the current conditions of the market, as well as the costs of any needed repairs that you’ll be responsible for. You can also research the area to contextualize the seller’s asking price.

Step 9: Negotiate closing costs

Negotiating closing costs is a common practice that can be particularly beneficial to first-time homebuyers. Closing costs are the final fees and costs that homebuyers have to pay before they complete the purchase of their house. Closing costs are usually between 2%-5% of the home’s purchase price and can include things like the appraisal fee, processing fee, and transfer taxes.

You can negotiate closing costs with your seller, your lender, and your real estate agent.       

Step 10: Find homeowners insurance and close on your home

Homeowners insurance provides financial protection for your home and property in case of certain disasters. These can include natural disasters like flooding or fires, or incidents like burglary. Since lenders are financially tied to your home and property, they generally require you to have homeowners insurance before you can close on your home. 

Traditional First-Time Homebuyer Programs

Conventional loans: Conventional loans are the most common home loans. They are not backed by any government agency and are, instead, governed by Fannie Mae and Freddie Mac. Since they are not guaranteed by the government, they can sometimes have fewer restrictions than government-backed loans.

The down payment on a Conventional loan can be as low as 3%, the minimum credit score required is 620, and in general, they have a max DTI of 43%. Some lenders will accept a higher DTI with certain conditions and downpayments range from 3%-20% depending on your credit profile and income.

FHA loans: FHA loans are home loans that are guaranteed by the Federal Housing Administration. The FHA does not administer the loans itself, but it works with approved lenders, like New American Funding, to administer these mortgages. FHA loans are popular with first-time homebuyers due to their more flexible credit, DTI, and down payment options.

FHA loans allow a minimum credit score of 500-580 depending on how much down payment you can provide. The down payment requirement is 3.5%-10% depending on your credit score and your DTI can be as high as 57% under certain circumstances.

USDA loans: USDA loans are mortgages that are guaranteed by the U.S. Department of Agriculture. They do not require a down payment, but you may be able to lower your interest rate by putting more money down. USDA loans allow for a minimum credit score of 580 and they allow for closing cost assistance.

USDA loans also have 100% financing for qualified borrowers and do not require private mortgage insurance (PMI). There are no occupational requirements to qualify; however, the property must be in an eligible geographic area. You can search the address of the property you are interested in to see if it qualifies.

VA loans: VA loans are mortgages that are guaranteed by the U.S. Department of Veterans Affairs. VA loans are only available to eligible veterans, military servicemembers, and spouses. They were designed to enable military members to achieve their dreams of homeownership and come with many benefits.

VA loans also do not require a down payment, they offer lower interest rates and have no monthly mortgage insurance premiums.

In addition to the federal requirements of each loan, there will be other applicable requirements and qualifications from your lender. Connect with NAF today and one of our Loan Officers will be happy to answer your questions and help you find the right loan program for your unique needs.

Mortgage Rates in Tennessee

A mortgage rate is the interest rate that you pay on your home loan. They change daily based on various factors and changes in the housing market and the national and global economy. The interest rate on your loan will also depend on your financial profile, such as your credit score, income, and DTI.

Tennessee First-Time Homebuyer FAQs

Is there an income limit for first-time homebuyers in Tennessee?

There is no general income limit for first-time homebuyers in Tennessee. However, various loans and assistance programs have their income requirements.

Can a person with a low income buy a house in Tennessee?

Yes. Tennessee has resources and home loans available that may be able to help a person with low income buy a home. The state does not have a minimum income requirement to purchase a home. As long as you are approved for whatever loan or program you are applying for, you are free to buy a home.

Does Tennessee have first-time buyers programs?

Yes, Tennessee has several first-time homebuyer programs available. They offer down payment assistance and homebuyer education courses and counseling. Check with the THDA to see details about their homebuyer programs.

How much does a first-time buyer have to put down in Tennessee?

How much a first-time homebuyer has to put down on a home depends on the loan type and their unique financial profile. For example, VA loans offer zero down payment, while the down payment on a Conventional loan can be between 3%-20%.

What credit score does a first-time homebuyer need to buy a home in Tennessee?

The credit score needed by a first-time homebuyer in Tennessee will depend on the loan type you are applying for and your financial situation. For instance, FHA loans may allow a credit score as low as 500 with a high enough down payment. For Conventional loans, a minimum credit score of 620 is generally required.

 

^{*Due to maximum seller concession rules, the discount can be less than $25,000 in some cases where other concessions have been made to the consumer.}

^{** NAF Homes, Inc. is an affiliate of New American Funding and does not originate mortgage loans or issue loan commitments.  NAF Homes, Inc. is an MI Real Estate Broker #6505431109, Tel. 844-626-1300.}

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