Tennessee Housing Development Agency (THDA) Mortgage Programs: Rates, Requirements, & Benefits

Tennessee Housing Development Agency (THDA) Mortgage Programs Guide

Tennessee Housing Development Agency (THDA) offers competitive mortgage programs with rates often 0.25-0.50% better than conventional lenders, plus down payment assistance for qualified buyers. Understanding THDA eligibility, programs, and application process helps Tennessee first-time and repeat buyers save thousands on home financing.

What is THDA?

Tennessee Housing Development Agency (THDA):

State agency providing affordable home financing to Tennessee residents. Established 1973; operates across all 95 Tennessee counties.

THDA Mission:

Make homeownership accessible and affordable for low-to-moderate income Tennessee families through:

Below-market mortgage rates
Down payment assistance grants
First-time buyer education
Homeownership counseling

THDA Funding Source:

THDA issues tax-exempt bonds to raise capital for mortgage lending. Tax-exempt status allows THDA to offer rates below conventional market rates (typically 0.25-0.50% lower).

THDA Mortgage Programs (2026)

1. Great Choice Loan (Most Popular)

Overview: 30-year fixed-rate mortgage with competitive rates and optional down payment assistance.

Key Features:

Rate: Typically 0.25-0.50% below market conventional rates
Down payment: 3.5% minimum (can be covered by assistance programs)
Credit score: 640+ typically (some flexibility)
Loan limits: Up to $726,200 (conforming); varies by county
Mortgage insurance: Required if <20% down
Available statewide

Current rates (early 2026):

740+ credit: 6.00-6.25%
680-739 credit: 6.25-6.50%
640-679 credit: 6.50-6.75%

Comparison to conventional:

Conventional 740+ credit: 6.50-6.75%
THDA 740+ credit: 6.00-6.25%
Savings: 0.25-0.50% = $50-100/month on typical Tennessee home

2. Great Choice Plus (With Down Payment Assistance)

Overview: Great Choice loan combined with 5% down payment assistance grant (or 4% forgivable second mortgage in some counties).

Key Features:

Same rates as Great Choice
Down payment assistance: 5% of purchase price (grant; not repaid)
Assistance can cover entire down payment + partial closing costs
Assistance forgiven immediately (no repayment)
Income limits apply (higher than Great Choice alone)
First-time buyer definition relaxed (see below)

Example: Knoxville purchase, $280,000

Down payment needed (3.5%): $9,800
THDA assistance (5%): $14,000
Assistance covers: Full down payment + $4,200 toward closing costs
Out-of-pocket: Minimal (only remaining closing costs ~$2,000-$4,000)

Advantage: Minimal cash required to close; preserves savings for reserves and moving costs.

3. New Start (Credit Challenged Borrowers)

Overview: Program for borrowers with lower credit scores or recent negative credit events (foreclosure, bankruptcy, short sale).

Key Features:

Rate: Same as Great Choice (competitive)
Credit score: 600+ accepted (more flexible than conventional)
Recent credit events allowed: 2-3 years vs conventional 3-7 years
Income limits: Similar to Great Choice Plus
Down payment: 3.5% minimum
Available with down payment assistance

Ideal for:

Credit scores 600-639 (conventional difficult)
Recent bankruptcy (2+ years)
Recent foreclosure/short sale (2+ years)
Collections or charge-offs (must be explained)

4. Homeownership for the Brave (Military/Veterans)

Overview: Special program for active military, veterans, and National Guard members.

Key Features:

Rate: 0.25% better than Great Choice (lowest THDA rates)
Down payment: 0% allowed (VA-style zero down)
Down payment assistance: 2% grant if needed
Funding fee: Reduced vs VA loan
Service requirement: 90+ days active duty or current National Guard

Current rates (early 2026):

740+ credit: 5.75-6.00%
680-739 credit: 6.00-6.25%

Comparison to VA loan:

VA loan rate: 6.25-6.50%
Homeownership for the Brave: 5.75-6.25%
Savings: 0.25-0.50%

THDA Eligibility Requirements

General Eligibility (All Programs):

1. First-Time Homebuyer Definition

THDA defines “first-time buyer” as:

✅ Have not owned home in past 3 years (primary residence)
✅ Divorced/legally separated from homeowner spouse (even if owned within 3 years)
✅ Single parent who owned home only with former spouse
✅ Displaced homemaker who owned only with spouse

Exception: Targeted areas (some Tennessee counties) allow repeat buyers regardless of prior ownership.

2. Income Limits (2026)

THDA sets income limits by county and household size:

Nashville/Davidson County:

1-2 person household: $120,100 maximum
3+ person household: $138,115 maximum

Memphis/Shelby County:

1-2 person household: $107,900 maximum
3+ person household: $124,085 maximum

Knoxville/Knox County:

1-2 person household: $112,300 maximum
3+ person household: $129,145 maximum

Chattanooga/Hamilton County:

1-2 person household: $102,850 maximum
3+ person household: $118,278 maximum

Rural Tennessee counties:

Generally higher income limits ($115K-$135K for 1-2 person households)

Income calculation:

Gross household income (all adults in household)
W-2 wages + bonuses + self-employment income
Does NOT include child support, Social Security, or disability income for qualification

3. Purchase Price Limits (2026)

THDA limits purchase price by county:

Most Tennessee counties:

Purchase price limit: $726,200 (conforming loan limit)
Some rural counties: Lower limits ($450K-$550K)

Nashville, Memphis, Knoxville, Chattanooga metro areas:

Purchase price limit: $726,200

Note: Purchase price includes sales price + closing costs financed (if any).

4. Credit Score Requirements

Great Choice / Great Choice Plus:

Minimum credit score: 640 preferred; 620 possible with compensating factors
Recent late payments: Explained and resolved
Collections/charge-offs: Under $2,000 total or payment plan established
Bankruptcy: 2+ years since discharge
Foreclosure/short sale: 3+ years typically

New Start:

Minimum credit score: 600
Recent credit events: More flexible (2+ years vs 3+ years)

5. Homebuyer Education

Required for all THDA loans:

Complete HUD-approved homebuyer education course (8 hours online or in-person)
Cost: Free to $50 typically
Covers: Budgeting, credit, home shopping, mortgage process, home maintenance
Certificate required before closing

Providers: THDA website lists approved Tennessee providers (online and in-person classes available statewide).

6. Occupancy Requirement

Property must be primary residence (no investment properties)
Must occupy within 60 days of closing
Must occupy for at least 1 year minimum

THDA Down Payment Assistance Breakdown

Great Choice Plus Assistance:

Assistance amount: 5% of purchase price (grant)

Example calculations:

Purchase Price	5% Assistance	Down Payment Needed (3.5%)	Assistance Covers
$200,000	$10,000	$7,000	Full down + $3,000 closing
$250,000	$12,500	$8,750	Full down + $3,750 closing
$300,000	$15,000	$10,500	Full down + $4,500 closing
$350,000	$17,500	$12,250	Full down + $5,250 closing

Forgiveness: Immediate (no repayment required)

Restrictions:

Cannot be combined with seller concessions >3%
Cannot be used for investor-purchased properties
Must meet income limits (slightly lower than Great Choice alone)

4% Forgivable Second Mortgage (Select Counties):

Some Tennessee counties offer 4% forgivable second mortgage instead of 5% grant:

Amount: 4% of purchase price
Repayment: Forgiven over 15 years (prorated)
Forgiveness schedule: 1/15th forgiven each year

Example: Murfreesboro purchase, $275,000

Down payment assistance: $11,000 (4%)
Forgiveness: $733/year (1/15th of $11,000)
If sold after 5 years: $7,335 repayment required (10 years remaining × $733)
If held 15+ years: $0 repayment

THDA Application Process

Step 1: Find THDA-Approved Lender (Week 1)

THDA loans only available through approved participating lenders:

Visit THDA.org → Find a Lender
Select lender based on location, reviews, responsiveness
Contact 2-3 lenders to compare

THDA-approved lenders in Tennessee: 100+ banks, credit unions, mortgage companies statewide

Step 2: Complete Homebuyer Education (Week 1-2)

Enroll in HUD-approved homebuyer education:

Online courses: 6-8 hours (self-paced)
In-person classes: Single 8-hour session
Receive certificate of completion
Provide to lender before closing

Step 3: Pre-Approval Application (Week 2-3)

Apply with THDA-approved lender:

Provide income documentation (pay stubs, tax returns)
Provide asset documentation (bank statements)
Authorize credit pull
Lender determines THDA program eligibility
Pre-approval issued if qualified

Timeline: 3-7 days typical

Step 4: House Hunting (Week 3-8)

Search for home within:

Purchase price limits
County where qualified
Must be primary residence
Must meet THDA property standards (inspection required)

Step 5: Make Offer & Underwriting (Week 8-10)

Submit offer on home
Formal loan application to THDA lender
Full underwriting review
THDA reserves funds for loan
Appraisal ordered
Title search completed
Conditions cleared

Timeline: 25-35 days typical from accepted offer to closing

Step 6: Closing (Week 10-12)

Final walk-through
Sign closing documents
Receive keys
Move in within 60 days

THDA vs Conventional Mortgage Comparison

Nashville Purchase: $350,000, 3.5% Down

THDA Great Choice Plus:

Rate: 6.25%
Down payment needed: $12,250
Down payment assistance: $17,500 (5% grant)
Net out-of-pocket: $0 down payment + $3,000 closing costs
Monthly P&I: $2,151
Monthly MI: $200 (required <20% down)
Total monthly payment: $2,351

Conventional (740 credit):

Rate: 6.75%
Down payment needed: $12,250
Down payment assistance: $0
Out-of-pocket: $12,250 down + $7,000 closing costs = $19,250
Monthly P&I: $2,185
Monthly PMI: $245
Total monthly payment: $2,430

THDA Advantages:

✅ $17,500 down payment assistance (saves cash)
✅ 0.50% lower rate (saves $34/month)
✅ Lower mortgage insurance ($200 vs $245)
✅ Total savings: $79/month + $19,250 cash preservation

30-year savings (THDA vs conventional): $28,440 + $17,500 assistance = $45,940 total benefit

Common THDA Questions & Misconceptions

Q: Is THDA only for first-time buyers?

A: Mostly yes, but exceptions exist:

Repeat buyers eligible in targeted counties (some rural Tennessee areas)
Military/veterans may be eligible regardless of prior ownership (Homeownership for the Brave)
Divorced/separated individuals eligible even if owned with former spouse

Q: Can I use THDA if I make too much money?

A: Income limits apply; if you exceed limits for your county/household size, you’re ineligible. However:

Limits higher in rural counties ($115K-$135K for 1-2 person households)
Consider whether spouse income must be included (depends on loan application)
Check annually as limits adjust

Q: How do THDA rates compare to conventional?

A: THDA typically 0.25-0.50% lower:

THDA 740+ credit: 6.00-6.25%
Conventional 740+ credit: 6.50-6.75%
Savings: $50-100/month on $300K loan

Q: Can I refinance a THDA loan?

A: Yes, but:

Can refinance to conventional mortgage anytime (no penalty)
Can refinance to another THDA loan if rates drop significantly (recapture rules apply)
Recapture: May owe portion of tax subsidy if refinancing within 9 years and home appreciates significantly
Consult THDA or tax professional about recapture implications

Q: What if I sell my home within a few years?

A: THDA loans have no prepayment penalty:

Can sell anytime
If used 5% grant (Great Choice Plus): No repayment
If used 4% forgivable second: Prorated repayment based on years held
Recapture tax possible if sold within 9 years with significant gain (consult tax pro)

Q: Does THDA have closing cost assistance?

A: Yes, indirectly:

Great Choice Plus 5% assistance can cover down payment + partial closing costs
If assistance exceeds down payment, remainder applied to closing costs
Example: $10,000 assistance, $7,000 down payment needed = $3,000 toward closing costs

THDA Success Stories

Example 1: Memphis First-Time Buyer

Borrower: 680 credit, $55K income, first-time buyer

Scenario:

Purchase price: $240,000
THDA Great Choice Plus selected
Rate: 6.50% (vs conventional 7.00%)
Down payment assistance: $12,000 (5%)
Down payment needed: $8,400 (3.5%)
Net assistance: $12,000 - $8,400 = $3,600 toward closing costs

Result:

Out-of-pocket closing costs: $2,500 (vs $8,400 down + $6,100 closing = $14,500 without THDA)
Savings: $12,000 cash preserved
Monthly payment: $1,777 (vs $1,850 conventional)
Total benefit: $12,000 + $73/month savings = $38,280 over 30 years

Example 2: Knoxville Repeat Buyer (Targeted County)

Borrower: 740 credit, $95K income, owned home 2 years ago (sold when relocated)

Scenario:

Purchase price: $310,000 (Knox County targeted area allows repeat buyers)
THDA Great Choice selected (no assistance; income too high for Plus program)
Rate: 6.00% (vs conventional 6.50%)
Down payment: $10,850 (3.5%)

Result:

Monthly payment: $1,857 (vs $1,960 conventional)
Savings: $103/month
30-year savings: $37,080

Example 3: Chattanooga Veteran

Borrower: 720 credit, $70K income, National Guard member

Scenario:

Purchase price: $285,000
Homeownership for the Brave selected
Rate: 6.00% (vs VA loan 6.50%)
Down payment: $0 (zero down allowed)
Assistance: $5,700 (2% grant to cover closing costs)

Result:

Out-of-pocket: $500 (minimal remaining closing costs)
Monthly payment: $1,708 (vs $1,802 VA loan)
Total benefit: $5,700 assistance + $94/month savings = $39,540 over 30 years

THDA Program Summary

Key takeaways:

THDA rates competitive: 0.25-0.50% lower than conventional (saves $50-100/month)
Down payment assistance significant: 5% grant covers full down payment + partial closing costs
First-time buyer friendly: 640+ credit, 3.5% down (or 0% with assistance), homebuyer education required
Income limits apply: Check county-specific limits; repeat buyers eligible in some areas
Military benefits: Homeownership for the Brave offers lowest rates + 0% down
Application through approved lenders: 100+ Tennessee lenders participate

Tennessee homebuyers maximize THDA benefits by completing homebuyer education early, checking income/price limits for their county, and comparing THDA rates vs conventional to quantify total savings.

Visit THDA.org or contact THDA-approved lender to explore eligibility and program options.

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