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Tennessee first-time home buyer programs

Between vibrant cities like Nashville and quiet towns deep in the Appalachians, Tennessee has something for everyone. Life in the Volunteer State means steeping yourself in history, culture and natural beauty. This all while enjoying below-average mortgage rates and some of the country’s lowest property taxes. Still, buying a home is likely the biggest purchase you’ll make in your life. That’s why the federal government and Tennessee Housing Development Agency (THDA) offer first-time homebuyer programs to help you navigate the process. Check out the below options and consider enlisting a financial advisor to help you choose which one is best for you.

Federal First-Time Homebuyer Programs

FHA Loans

Pros – Low down payment
– Flexible credit approval
Cons – Borrowers with low credit scores may need to make higher down payments
Eligibility – Credit score of 500 or above
– Down payment of at least 3.5%
Best For – Anyone lacking a squeaky clean credit history or adequate savings for a down payment

The Federal Housing Administration backs FHA loans, which are a great option for first-time homebuyers throughout the country. Rather than the usual 20%, borrowers only need to cough up a 3.5% down payment at the time of purchase.

Better yet, FHA loans are available to almost all potential borrowers. You need a credit score of 580 to receive the down payment perk in its full glory, you can still qualify with a score as low as 500. You’ll need to make a down payment closer to 10%, but that’s still half the usual amount.

VA Loans

Pros – Potential for no down payment
– No private mortgage insurance
– Reduced closing costs
Cons – Must pay VA fee
– Application process can be drawn out
Eligibility – Credit score of 620 or above
– Must be a current or former military member, spouse, or other beneficiary
Best For – Veterans without enough income or savings to afford a down payment

The Department of Veterans Affairs (VA) insures VA loans to help veterans become homeowners. Since many veterans don’t earn enough monthly income or have sufficient savings to afford a down payment, VA loans do not make you pay one.

Since the government will back part of your risk, you also won’t have to get private mortgage insurance (PMI). PMI is usually required for any borrowers that provide less than 20% down payment, so this is a big perk.

To qualify for these impressive perks, veterans need a credit score of at least 620. You also need to contribute 1.25% to 2.4% of your home’s value into the VA fund, depending on the size of your (optional) down payment. VA loans usually come with low closing costs too, leaving even more money in your wallet.

USDA Loans

Pros – No down payment
– Flexible credit approval
Cons – Not available to anyone that qualifies for a conventional mortgage
– Not available in some areas
Eligibility – Must earn within 115% of the adjusted U.S. median income in most cases
– Home must be in an eligible area
Best For – Low- to mid-income borrowers looking to live in a rural or semi-rural area

The United States Department of Agriculture (USDA) sponsors “Section 502 Single Family Housing Guaranteed Loan Program.” Better known as USDA mortgages, these loans attract new homebuyers to rural and semi-rural communities. So long as you have a decent credit history, they completely eliminate the need for a down payment.

To qualify, you must earn less than 115% of the U.S. median income. You also have to prove that you are unable to secure a conventional mortgage. Don’t worry if your score falls a bit lower on the FICO® scale. You’ll just have to pay a down payment, typically around 10% of your home’s value. At half the standard down payment size, it’s still a big improvement from what most homebuyers experience.

Good Neighbor Next Door Program

Pros – 50% flat discount on home price
Cons – Not available in most areas or for most people
Eligibility – Home must be your primary residence for at least three years
– Must be a police officer, firefighter, emergency medical technician or teacher
Best For – Public servants without adequate savings for a home

The U.S. Department of Housing and Urban Development‘s (HUD) Good Neighbor Next Door Program is more of a discount than a loan. It rewards police officers, firefighters, emergency medical technicians, and pre-K through 12th grade teachers with a 50% discount on the purchase price of their first home. HUD encourages participants to use a conventional, VA or FHA mortgage to finance the rest of the home.

For such spectacular benefits, it’s unsurprising that there are conditions. For one, homes must be located within a HUD-designated “revitalization area” to qualify. Most notably, you must agree to stay in the home for at least three years after the purchase. So long as you meet these terms, you can sell the home and hold onto any equity and profit once the three years are up.

Fannie Mae/Freddie Mac

Pros – Low down payment
– Flexible credit approval
– Multiple loan types available
Cons – Higher rates than other federal programs
Eligibility – Must earn within location-specific income requirements
Best For – Borrowers looking for a low down payment option that don’t qualify for other federal programs.

Fannie Mae’s HomeReady® loan can be accessed with as little as 3% down. To qualify, you’ll need a credit score of at least 620 and must earn an income at or near the U.S. median. With a HomeReady loan, you must have private mortgage insurance at the time of purchase. Luckily, once you’ve accrued 20% equity in your new home, you can cancel it.

Freddie Mac’s Home Possible® program offers the “Home Possible: 97% LTV,” which stands for loan-to-value. This means the down payment is 3%. With a Home Possible loan, you can choose a 15-year loan or a 30-year one. You can also go with fixed rates or an adjustable-rate mortgage.

It also has the cancelable private mortgage insurance that comes with a HomeReady loan. Perhaps best of all, you won’t need a strong (or any) credit history to qualify.

NADL

Pros – No down payment
– No private mortgage insurance
– Flexible credit approval
– Reduced closing costs
Cons – Not available in most areas or for most people
Eligibility – Home must be located in an eligible territory
– Must be a current or former military member of Native American descent, their spouse, or other beneficiary
Best For – Native American veterans that don’t have the necessary income or savings to afford a down payment

The Department of Veteran Affairs’ Native American Direct Loans (NADL) are designed specifically for Native American veterans and their spouses. Some NADL benefits, like lowered closing costs and elimination of the private mortgage insurance requirement, are extended from regular VA loans. In much the same way, an NADL can also cover up to 100% of your home’s value.

What sets NADLs apart is the set interest rate, which is currently 4.75% . To make things even better, you do not need a strong credit history to qualify. Just remember that the home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts.

Tennessee First-Time Homebuyer Programs

Tennessee first-time home buyer programs

The Tennessee Housing Development Agency (THDA) offers several programs to help Tennesseans purchase their first home. All THDA mortgages are 30-year fixed-rate loans. They also have down payment assistance grants and mortgage tax credits to make homeownership even more affordable. THDA doesn’t review applications or lend money itself, but it does approve and connect first-time homebuyers with lenders across the state. Any buyers that haven’t owned their primary residence in the last three years are eligible to participate. In some cases, income and purchase price limits also apply.

Great Choice Home Loan

Pros – Low down payment
– Low interest rates
– Potential to combine with Down Payment Assistance to save even more
Cons – Must meet lender requirements and county-specific income limits
Eligibility – Credit score of 640 or above
– Income and purchase price limits dependent on household size and home location
Best For – Low- and mid-income Tennesseans without adequate savings for a down payment

THDA’s Great Choice Home Loan Program helps first-time homebuyers overcome several common obstacles. It’s especially helpful for buyers scraping together the money they need for a down payment. ,

With decent credit, you can borrow up to 96.5% of your home’s value. That means you only need a 3.5% down payment at the time of purchase.

On top of location-specific income and purchase price limits, borrowers need a FICO® score of 640 or above to qualify. So long as you can secure a Great Choice loan, you’re automatically eligible for THDA down payment and closing cost assistance as well. That means even more savings as you work toward your monthly payments.

Homeownership for the Brave

Pros – Potential for no down payment
– Reduced interest rates
– Potential to combine with Down Payment Assistance to save even more
Cons – Must meet lender and VA, FHA, or USDA requirements
Eligibility – Credit score of 640 or above
– Must be an active duty military member, veteran, or reservist with at least 180 days of active duty service; their spouse, or other beneficiary
– Income and purchase price limits dependent on household size and home location
Best For – Tennessee veterans without adequate savings for a down payment

The THDA has launched the Homeownership for the Brave program to celebrate and honor the brave people that serve in the military. It is a special type of Great Choice loan available only for active-duty service members, veterans, reservists and their spouses. FHA and USDA loans can come with the same 3.5% down payment requirement. If you’re getting a VA-backed loan, you may not have to pay any down payment at all!

Homeownership for the Brave loans have the same requirements of a Great Choice loan with the additional military service stipulation. Like a Great Choice loan, a Homeownership for the Brave loan can be combined with additional financial assistance so long as you complete a homebuyer education course.

Great Choice Plus

Pros – Receive up to 5% of your home’s purchase price
– Zero interest
– Deferred repayment
Cons – Must be repaid in most cases
Eligibility – THDA loan participant
– Must complete a homebuyer education course
Best For – Homebuyers taking advantage of THDA programs that need more help to cover their down payment or closing costs

As long as you qualify for a Great Choice Home or Home Ownership for the Brave loan, you are also eligible for down payment and closing cost assistance through Great Home Plus. This comes in the form of a no-interest second mortgage worth up to 5% of your home’s value.

Best of all, you don’t have to pay a penny back until you sell, move out of or refinance your home. Since the loan doesn’t carry any interest, you won’t ever pay more than what you borrowed.

The only “catch” for Great Choice Plus is that you have to complete a homebuyer education course from a THDA-approved instructor before you make the purchase. Since classes can be taken online or in-person, it’s not too difficult of a condition to meet. Plus, the course will teach you valuable lessons about the responsibilities and realities of homeownership.

HHF Down Payment Assistance

Pros – Receive up to $15,000
– Zero interest
– Deferred repayment
– Forgiven over time
Cons – Must meet THDA and HHF requirements
Eligibility – THDA loan participant
– Home must be in an eligible area
– Must complete a homebuyer education course
Best For – Tennesseans taking advantage of THDA programs in certain, downtrodden areas

HHF stands for Hardest Hit Fund, which is a program the federal government created in 2010 to help revitalize areas that were especially damaged after the 2008 mortgage crisis. In Tennessee, the Hardest Hit Fund provides down payment assistance for THDA homebuyers looking to buy in designated areas that the authority considers to be having especially difficult time recovering.

An HHF down payment assistance loan is worth up $15,000. Like Great Home Plus, it is a second mortgage that doesn’t carry any interest. Also as with Great Home Plus assistance, you won’t have to make monthly payments. Unlike Great Home Plus, HHF Down Payment Assistance has a 10-year term. And, if you stay in the home more than five years, the loan balance is forgiven at a rate of 20% per year. Stay for 10 years and the loan is totally forgiven.

To qualify, you must have a Great Choice Home first mortgage in an HHF-designated zip code. You also have to purchase an existing home, meaning no new construction allowed. Last but not least, you will have to complete homebuyer education course both pre- and post-purchase. Keep in mind that if you sell, move out of, or refinance your home within the first five years, you will have to repay the entire amount.

Take Credit MCC Program

Pros – Reduced federal tax bill
– Lasts the entire lifetime of the loan until repayment, refinancing, or sale
Cons – Cannot be combined with a THDA loan
Eligibility – Must use THDA-approved lender
– Must complete a homebuyer education course
– Income and purchase price limits dependent on household size and home location
Best For – Tennessee homeowners looking to save on their annual tax bill

In addition to loan and down payment assistance programs, the Tennessee Housing Development Agency provides eligible homebuyers with a Take Credit Mortgage Credit Certificate (MCC) to make homeownership even more affordable. Through this program, borrowers receive an annual federal tax reduction up to $2,000 a year.

You can claim the credit every year for the life of the loan so long as the home remains your primary residence. That means it could save you thousands of dollars over time. Eligibility requirements for the Mortgage Credit Certificate are similar to other THDA programs, including completion of a homebuyer education course. Unfortunately, you cannot take advantage of the Take Credit MCC program if have a THDA loan.

Tips for a New Mortgage

Tennessee first-time home buyer programs

  • Analyze lenders, interest rates and down payment requirements for each mortgage program before you pick one. Just because you qualify doesn’t mean it’s right for you. Also, remember to consider moving and closing costs as well as the down payment.
  • Ask for help when you need it. The SmartAsset financial advisor matching tool will match you with up to three Tennessee-based advisors that can show you how to manage your budget as a new homeowner.

Photo credit: ©iStock.com/courtneyk, ©iStock.com/sturti, ©iStock.com/Jirapong-Manustrong

Liz Smith Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.
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