FHA Loans in Tennessee: What You Need to Know
Updated: Jun 7
Affiliate Marketing Disclosure
Tennessee is a state well known for its country music, the beautiful Great Smoky Mountains, and great culture. Over the past few years, the housing market in TN has boomed in large part to the state's lack of income tax, low cost of living, and beautiful scenery.
First-time home buyers (and repeat buyers too) may opt to use FHA loans in order to buy their homes in Tennessee.
What are FHA loans?
FHA loans are a type of mortgage program that is backed by the United States' Federal Housing Administration, part of the Department of Housing and Urban Development. FHA loans have been around since 1934, and can be a great option for those without great credit or large down payments.
The FHA program is known for having "looser" financial requirements than Conventional mortgage programs. In return for these less stringent requirements, you will encounter two different mortgage insurance fees: an upfront mortgage insurance premium (assessed at 1.75% of the loan amount), and an annual insurance premium to compensate your lender for lending money to you.
Under the terms of the program, you'll have your pick between a fixed 15 or 30 year interest rate, meaning that your monthly payments will remain fixed for the entirety of your loan's term.
More: First-time home buyer programs in Tennessee
FHA loan requirements in Tennessee
Tennesseans may opt to use the Federal Housing Administration (FHA) program to finance new home purchases across the state. The program is sponsored nationally, though individual states may have slightly different requirements.
FHA loans in Tennessee require you to meet the following requirements:
A minimum credit score of 500-580 - those below 580 will need a larger down payment
A minimum down payment of 3.5% - as long as your credit score is at least 580
Have a debt-to-income ratio under 43% - some lenders may allow you to be closer to 50%, but it is lender dependent
Other requirements that you'll need to meet include completing an FHA appraisal and utilizing your new home as a primary residence for a minimum of twelve months.
Related: First-Time Home Buying 101 Guide
FHA loan limits in Tennessee
Just like the rest of the country, Tennessee has FHA loan limits that are established at the county level. These loan limits are established individually for four different types of properties:
Single-family homes
Duplex
Tri-plex
Four-plex
2022 loan limits in TN have established the limits for the majority of counties across the state between $420,680 and $809,150.
Single-family | Duplex | Tri-plex | Four-plex |
$420,680 | $538,650 | $651,050 | $809,150 |
Some metro counties with higher costs of living, particularly those areas around Nashville, have higher loan limits between $694,600 and $1,335,800.
FHA lenders in TN
When you opt to participate in the program, you'll need to work with a licensed and participating lender. In Tennessee, your best options for lenders include:
Rocket Mortgage - minimum credit score of 580
Better Mortgage - minimum credit score of 620
Guild Mortgage - minimum credit score of 540
U.S. Bank Home Mortgage - no minimum credit score listed
And while lenders generally have to abide by the guidelines set by the Department of Housing and Urban Development, they are able to establish different minimum credit requirements to qualify for home financing.
Applying for a TN FHA loan
If you decide to pursue the FHA program, you'll need to follow a number of steps to complete the application (and ultimately the loan disbursement and closing process).
Once you select a lender to work with, whether it is one listed above or a local lender, you'll need to prepare to hand over lots of financial paperwork and account information as part of the mortgage approval process. This is not unlike the information you'll need to provide when applying for a Conventional mortgage.
You'll likely need most or all of the following documentation as a starting point:
Your social security number
A minimum two-year track record of stable income and employment
Employment verification and W-2 history
A number of recent paystubs
Housing information about your current home or rental
Financial statements for accounts you are using to fund a down payment
FHA loans in Tennessee do not carry a cash reserve requirement, meaning that you don't need to have a lot of cash savings in the bank.
After you submit all of your documentation, a loan officer will verify that your application is complete, before passing it on to an underwriter who will evaluate the risks involved with financing your home.
Typically, the entire process from application to loan closing can be completed in about a month.
Do we think FHA loans are worth it?
We like and recommend FHA loans for some, despite the high mortgage insurance fees. Here is why.
Imagine that you buy a home for $300,000. With a Conventional mortgage, you'd generally need to put down a minimum of $30,000 as a down payment (10% of the home's purchase price). Remember, with an FHA loan, you'll only need a 3.5% down payment, equal to $10,500 (as opposed to $30,000).
So even with the upfront 1.75% mortgage premium, which is assessed on your loan amount, rather than the home's purchase price, you'll be able to get in your home for under $16,000, rather than $30,000, plus closing costs.
Sure, you'll still have annual premiums to pay, but we're willing to look past this due to the significantly lower down payment expenses. And with Tennessee home prices among the most affordable in the entire country, your home buying math may look similar to this example.
Only you can decide if this trade-off is worth it for you, but FHA loans definitely have a place in helping those with less than excellent credit scores realize their homeownership dreams earlier in life.
FHA loan tips and tricks
Up to this point, we've presented you some of the facts as far as how the FHA program in Tennessee works. Now, were going to share some tips and tricks with you if you decide that the FHA program is for you.
1. Make the minimum down payment only
First and foremost, you'll likely want to pay just the minimum 3.5% down payment to get started. And while this would go against our normal logic, it is one of the perks of the program, and it will allow you to maintain financial flexibility for other aspects of your life.
It isn't like coming up with a larger down payment will eliminate or substantially reduce the upfront mortgage premium. If you finance a $300,000 home purchase with an FHA loan, for instance, the normal 3.5% down payment will leave you with an upfront premium expense of $5,066. If you decide to put 7% down instead - double the required about - your premium will still be nearly $4,900. Parting with thousands of dollars extra would save you less than $200.
It is up to you, of course, but more often than not, we like to maintain as much financial flexibility as possible. This will also depend on your personal finances.
2. Improve your credit score and DTI ratio
You may meet the minimum credit score and DTI requirements now to qualify for an FHA loan. But over the time it takes you to find a home and apply for financing, focus on improving both of these metrics.
Not only will paying down debt improve your credit score and your debt to income ratio at the same time, but it could save you thousands of dollars by virtue of move favorable financing and a lower interest rate.
Get our free mortgage calculator
Whether you end up taking an FHA loan to finance your Tennessee home purchase or not, we built you a mortgage calculator. This completely free tool will help you estimate your mortgage payments based on your proposed home purchase price, loan term, interest rate, down payment percentage, and other variables.
The calculator is especially useful for those trying to decide between different down payments and loan types such as FHA, USDA, VA, Conventional, and other fixed-rate solutions.
Download your copy below!
Affiliate marketing disclosure
studentdebtdestroyer.com is a student loan research and education website provided by Grow Your Green LLC.
studentdebtdestroyer.com is not a student loan lender.
We're passionate about teaching and guiding people to a better personal finance situation. To do this, we create an enormous amount of content, which takes time, resources, and money.
In order to write about and offer these products and services for you, we utilize affiliate marketing and link to certain products and services. If you click on, subscribe, to purchase on these links then we may be paid a small commission. These are at no cost to you, but by earning small commissions, are able to help us keep our website active.
We manually review all products and services that we think are of high quality and value to you.
