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If you’ve been watching the housing market in Knoxville, Chattanooga, or the Tri-Cities lately, you know the story. Prices have climbed, and for many of us, saving up that traditional 20% down payment feels like chasing a moving target.
But here is the good news that doesn’t always make the headlines: you usually don’t need 20% down. In fact, many buyers in East Tennessee get into their new homes with little to no money out of pocket.
Financial assistance isn’t just for low-income households. Many moderate-income buyers—teachers, factory workers, nurses, and office staff—qualify for programs they didn’t even know existed. Generally, support comes from three main buckets: the state level (THDA), local non-profits in specific cities, and federal loan guarantees.
Let’s walk through the numbers and see what might work for you.
Tennessee Housing Development Agency (THDA) Programs
When we talk about down payment assistance in Tennessee, the conversation almost always starts with the Tennessee Housing Development Agency, or THDA. They are the state’s housing finance agency, and they offer the most widely available programs for East Tennessee buyers.
Great Choice Home Loan
Think of this as the foundation. The “Great Choice” program isn’t free money itself; it is a 30-year fixed-rate mortgage. It offers a steady, safe interest rate and works with standard loan types like FHA, VA, USDA, and conventional loans. Once you are approved for this base loan through a participating lender, you can unlock the down payment assistance options attached to it.
Great Choice Plus: Down Payment Assistance
This is the part most buyers are looking for—the cash to close the deal. THDA calls this “Great Choice Plus,” and it comes in two different flavors depending on how much help you need and how you want to pay it back.
- Deferred Option (No Monthly Payments): This provides $6,000 in assistance. The interest rate on this $6,000 is 0%, and you do not make monthly payments on it. Even better, if you live in the home for the full 30-year term (or until you pay off the first mortgage), the loan is forgiven. It’s a great option if you just need a small bump to cover closing costs.
- Amortizing Option (Monthly Payments): If you need more buying power, this option offers up to 5% of the purchase price (maxing out at $15,000). The catch is that this is a second loan that you have to pay back monthly over 30 years. The interest rate matches your first mortgage.
Homeownership for Heroes
If you serve our community, THDA offers a specialized reduction in interest rates. This program is available to active duty military, veterans, Reservists, National Guard members, law enforcement officers, firefighters, EMTs, and paramedics. It usually knocks a bit off the standard Great Choice interest rate, which can save you thousands over the life of the loan.
Eligibility: Income and Purchase Price Limits
There is some fine print involved here. To keep these programs sustainable, the state sets specific rules on who qualifies.
- Credit Score: The magic number is generally 640. If your middle credit score is 640 or higher, you meet the credit requirement for most THDA programs.
- Income Limits: These vary by county and by the size of your household. For example, in the Greater Knoxville area (including Anderson, Blount, and Knox counties), the limit for a 1-2 person household is roughly $61,900, jumping to over $71,000 for households with 3 or more people. In Hamilton County, the numbers are similar. Always have your lender check the current year’s table, as these adjust annually.
- Acquisition Cost Limits: There is a cap on how expensive of a house you can buy. For most counties in East Tennessee, the purchase price limit is approximately $375,000.
- First-Time Buyer Rule: Generally, you must be a first-time homebuyer. In the mortgage world, this means you haven’t owned a principal residence in the last three years. However, there is a major exception to this rule known as “Targeted Areas.”
Targeted Areas in East Tennessee: Waiving the Rules
This is one of the best-kept secrets in our local market. The government designates certain areas of chronic economic need as “Targeted Areas.”
If you buy a home in a Targeted Area, you do not have to be a first-time buyer. You could own a home right now, sell it, and use THDA assistance to buy your next one. Additionally, the income and purchase price limits in these areas are often higher.
In East Tennessee, entire counties are sometimes designated as Targeted Areas. As of the most recent charts, counties like Campbell, Claiborne, Cocke, Grainger, Hancock, Jefferson, Monroe, Morgan, Scott, and Union are fully targeted.
Even in more developed counties like Knox, Hamilton, and Sullivan, specific census tracts (neighborhoods) are targeted. Your lender can look up a specific address to see if it falls into one of these zones.
Local City and County Assistance Programs
While the state program is great, sometimes looking closer to home reveals even more aggressive assistance, especially in our bigger cities.
Chattanooga
Buyers interested in buying a home in Chattanooga should look into Chattanooga Neighborhood Enterprise (CNE). They are a local powerhouse for affordable housing. CNE often offers down payment assistance that exceeds what the state offers—sometimes upwards of $20,000 to $25,000 depending on funding. Their assistance is typically structured as a second mortgage, often with a 15-year term.
Knoxville
People often ask about the City of Knoxville’s direct down payment assistance. While the city has had programs in the past, funds are often limited or fully allocated. Instead, you are better off connecting with partners like HomeSource East Tennessee or Knoxville Habitat for Humanity. These organizations often manage the distribution of funds or have their own programs to help moderate-income buyers get into homes for sale in Knoxville.
Tri-Cities
If you are looking in Johnson City, Kingsport, or Bristol, the Eastern Eight Community Development Corporation is your go-to resource. They serve eight counties in Northeast Tennessee and offer homebuyer education along with various assistance programs to help with down payments and closing costs.
Federal Loan Options Common in East Tennessee
Sometimes the best “assistance” isn’t a grant, but simply choosing the right loan type that requires zero down payment.
- USDA Rural Development Loans: This is massive for East Tennessee. If you are looking outside the main city limits—think places like Seymour, Soddy-Daisy, or Jonesborough—the property might qualify for a USDA loan. These loans offer 100% financing, meaning no down payment is required.
- VA Loans: If you are a qualifying veteran or surviving spouse, the VA loan is arguably the best mortgage product on the market. It offers 100% financing and no private mortgage insurance (PMI). You can even pair this with the “Homeownership for Heroes” rate reduction mentioned earlier.
- FHA Loans: While this requires a 3.5% down payment, it is much more lenient on credit scores than conventional loans. This is the most common loan type paired with THDA down payment assistance.
Steps to Apply for Assistance
If you are ready to stop renting and start owning, here is your practical roadmap:
- Take a Homebuyer Education Course: This is almost always mandatory for assistance programs. Whether it is THDA or CNE, they want to make sure you understand the budget. You can usually take these online or in-person.
- Find an Approved Lender and Advocate: This is crucial. You cannot just walk into any bank and get a THDA loan; you must work with a “participating lender” who knows how to process the state’s paperwork. To ensure the process goes smoothly, it is wise to consult with the best real estate agent in East Tennessee who understands these specific programs and can connect you with the right local lenders.
- Check Your Limits: Before you fall in love with a listing, verify that your household income fits the county limits and that the home price is under the cap.
- Get Pre-Approved: Do this before you start touring homes. In a competitive market, having a pre-approval letter that already accounts for your down payment assistance shows sellers you are a serious, qualified buyer.
FAQs
Can I get down payment assistance if I’m not a first-time homebuyer?
Yes, but usually only if you purchase a home in a “Targeted Area” or if you are a qualified veteran using specific exemptions. In counties like Campbell or Cocke, the first-time buyer requirement is waived for THDA loans.
What is the income limit for THDA loans in Knox and Hamilton counties?
The limits depend on your household size. As of the recent charts, for a household of 1-2 people, the limit is approximately $61,000 to $62,000. For households of 3 or more, it jumps to over $70,000. Always ask a lender for the exact current figure as these change annually.
Does the City of Knoxville have a down payment assistance grant?
Direct city grants are often limited or closed due to funding cycles. However, the city works through partners like HomeSource East Tennessee. It is best to contact those agencies directly to see what funds are currently available for buyers.
How does the ‘Homeownership for Heroes’ program work?
This program provides a reduced interest rate on the 30-year fixed mortgage for eligible essential workers, including military, law enforcement, and EMTs. It helps lower your monthly payment compared to the standard market rate.
