Loan Programs For Knoxville First Time Home Buyers

One of the largest concerns for Knoxville first time buyers is often getting a mortgage. Mortgages are often a source of confusion and stress for many buyers. After all, the mortgage world can be a confusing place and it’s constantly evolving.

Without a mortgage, a vast majority of Knoxville first time buyers would be unable to buy a home. Many buyers often worry if they will be able to get a mortgage and if they’ll be able to afford the down payment. In this post, we’ll take a look at some of the loan programs for Knoxville first time home buyers. While not all of these loan programs require you to be a first time buyer, they’re among some of the most popular loan programs for first time buyers with little or no down payment.

FHA Loans

FHA loans have always been a very popular loan program for first time buyers. FHA loans are secured by the Federal Housing Administration, which is a government agency within the Secretary of Housing and Urban Development (HUD).

Benefits of FHA Loans –

  • The require a small down payment (3.5%)
  • Good for buyers with past credit issues
  • Only require credit scores as low at 620
  • Fixed rate loan, with low interest rate and no-prepayment penalties
  • Down payment can be gifted
  • Seller can pay for up to 6% of closing costs

Cons of FHA Loans –

  • They require mortgage insurance for the life of the loan
  • FHA mortgage insurance can be expensive

THDA Great Choice Plus Second Mortgage

For Knoxville first time buyers that lack a down payment, this a great loan option. A buyer will take out a traditional first mortgage (typically an FHA loan) and then take out a second mortgage for the downpayment through the Tennessee Housing Development Agency. The THDA Great Choice Plus Second Mortgage provides first time home buyers with a 15 year, 0% interest, deferred second mortgage to provide a buyer with funds for a down payment. After 10 years, the second mortgage disappears 20% at a time and disappears altogether at 15 years. If the buyer moves out prior to 15 years, they will be required to pay the balance of the second mortgage off at closing.

Benefit of THDA Great Choice Plus A Second Mortgage –

  • Ability to get into a house with no money down
  • Low credit score requirements (620 minimum)
  • No geographic restrictions
  • Down payment assistance of up to 4% of purchase price
  • Seller can pay up to 6% of closing costs

Cons of THDA Great Choice Plus A Second Mortgage –

  • Income limits do apply
  • Second loan requires repayment if you move sooner than 15 years

USDA Loans

USDA loans, or rural housing loans, are another popular loan for Knoxville first time buyers to get into a home with no money down, so long as a buyer buys a home in a “rural” area. They allow a buyer to get into a home with very little or no down payment.

Benefits of USDA Loans –

  • No down payment
  • Low credit score requirements (as low as 620)
  • Mortgage insurance is affordable (less than FHA loans)
  • Affordable mortgage payments
  • Seller can play up to 6% of a buyer’s closing cost
  • USDA loans don’t require you to be a first time buyer

Cons of USDA loans –

  • Geographic restrictions apply (check out the USDA map of eligible properties here)
  • Income limits apply
  • Loan requires 2 year job history and clean credit history

Conventional Loans

Traditionally, conventional loans are typically associated with putting 20% of more down on a home. For many first time buyers, it feel as if a conventional loan option is out of reach. Luckily, though, conventional loans allow first time home buyers to put as little as 3% down.

Benefits of Conventional Loans —

  • Low downpayment options 3% to 5% options available
  • Loan amounts up to $417,000
  • Can finance all different types of properties (single family homes, condos, PUDs, etc.)
  • Mortgage insurance disappears after loan-to-value reaches 78%
  • Low rates and flexible loan terms
  • Down payment may be gifted

Cons of Conventional Loans –

  • Requires some form of down payment

Bottom Line – Explore Your Options

You can only qualm your fears about buying your first Knoxville home by exploring your mortgage options. Talking with a loan officer will allow you to explore your loan options and have your questions answered. The more you know, the more prepared you are as a buyer.

Are you thinking about buying your first Knoxville home for sale this year? If so, do not hesitate to give Knoxville Home Team a call today. Rick can be reached at 865-696-9002 or via email at Kati can be reached at 865-696-1888 or via email at We’ve helped countless first time buyers find the perfect home for them and we’d love to help you do the same!