Down Payment Options and Assistance in Tennessee: A Buyer's Guide

The single most common reason people tell us they're not ready to buy a home in Middle Tennessee is the down payment. They've heard the old rule — 20 percent down — done the math on a Nashville-area price, and quietly decided homeownership is a few years away. That rule is the most expensive piece of outdated advice in real estate. It costs nothing to be wrong about, and it keeps people renting who could have bought.

Here's the honest version. There is no single required down payment. There is a menu of loan types, a set of state and local assistance programs, and a few rules about where your cash can come from. Most buyers we work with put down far less than 20 percent — and a meaningful number put down nothing at all, legally and with a conventional, fixed-rate loan. This guide lays out the whole menu so you can see where you actually stand before you ever talk to a lender. We're a Middle Tennessee team and this is the local read, written especially for buyers relocating here from out of state who don't yet know how Tennessee's programs work.

First, separate two things: the down payment and the cash to close

Buyers tend to lump all the upfront money into one scary number. It helps to split it in two, because the assistance programs treat them differently.

• •The down payment is the portion of the purchase price you pay yourself, up front. On a loan, it's the part you're not borrowing.
• •Closing costs are the fees to set up the loan and transfer the home — lender fees, title and escrow, recording, prepaid taxes and insurance, and your first escrow deposit. These are separate from the down payment and are commonly a few percent of the price.
• •Cash reserves are money some loan programs want to see you have left over after closing. Not always required, but worth knowing about.

This matters because several Tennessee assistance programs can be used for the down payment and/or closing costs. So the real question isn't just 'how much down' — it's 'how much total cash do I need to get to the closing table, and how much of it can come from somewhere other than my own savings?' For a lot of buyers, the answer is surprisingly little.

The loan type sets your minimum down payment

Before any assistance program enters the picture, the loan you choose sets the floor on your down payment. There are four common paths, and you generally won't know which fits best until a lender looks at your full picture. Here's the plain-English version of each.

Conventional loans — as little as 3% down

A conventional loan is the standard, non-government loan most people picture. Through programs backed by Fannie Mae and Freddie Mac, qualified first-time buyers can put down as little as 3 percent. Repeat buyers commonly start at 5 percent. If you put down less than 20 percent, you'll pay private mortgage insurance (PMI) — but unlike government-loan mortgage insurance, conventional PMI can typically be removed once you've built enough equity, which is one reason many buyers favor this route when they qualify.

FHA loans — 3.5% down, with more flexibility on credit

FHA loans are insured by the Federal Housing Administration and are designed to make buying more accessible. The minimum down payment is 3.5 percent for borrowers with a credit score of 580 or higher. Borrowers with scores between 500 and 579 may still qualify with 10 percent down, per FHA's published rules. FHA tends to be more forgiving on credit than conventional, which is why it's a workhorse for first-time and credit-rebuilding buyers. The trade-off is mortgage insurance that, in many cases, stays for the life of the loan unless you refinance — so it's worth comparing FHA against a low-down-payment conventional option, not just defaulting to one.

A detail that surprises out-of-state buyers: FHA allows your entire 3.5 percent down payment to come from a gift. More on gift funds below.

VA loans — 0% down for eligible service members and veterans

If you're an eligible veteran, active-duty service member, or qualifying surviving spouse, a VA loan allows up to 100 percent financing — zero down — with no monthly mortgage insurance. For those who qualify, it's typically the strongest no-down-payment option available. Tennessee has a large military and veteran community, and the VA loan pairs with state programs (see Homeownership for Heroes below) in ways many buyers don't realize.

USDA Rural Development loans — 0% down in eligible areas

USDA loans, also called Rural Development loans, offer 100 percent financing — no down payment — for moderate-income buyers purchasing in USDA-eligible areas. The catch many people get wrong: 'rural' is broader than it sounds. Pockets of Sumner, Wilson, Robertson, and other Middle Tennessee counties qualify, often in areas that don't feel remote at all, while more developed areas do not. Eligibility is determined by the specific address and by household income limits, so a home two streets over can have a different answer.

Tennessee's state programs: THDA Great Choice and down payment assistance

This is the part out-of-state buyers most often don't know exists. The Tennessee Housing Development Agency (THDA) is the state's housing finance agency, and its Great Choice Home Loan program is the backbone of first-time and moderate-income homebuying assistance across the state, including all of Middle Tennessee.

A Great Choice loan is a 30-year, fixed-rate mortgage. It isn't a separate kind of mortgage so much as a THDA-backed version of the FHA, VA, USDA, or conventional loan you'd already be getting — paired with access to down payment assistance. According to THDA, key features include:

• •A 30-year, fixed interest rate (your rate and payment don't change over the life of the loan).
• •A minimum credit score of 640 for everyone on the loan application.
• •Financing through FHA, VA, USDA-RD, or conventional (Freddie Mac HFA Advantage) loans.
• •Household income limits and home purchase-price (acquisition cost) limits that vary by county.
• •A required homebuyer education class for anyone using down payment assistance.

You do not have to be a first-time buyer for every path. THDA defines a first-time homebuyer as someone who hasn't owned and occupied their principal residence in the past three years — but repeat buyers can still qualify if they're buying in one of THDA's targeted counties or if they qualify under the military and veteran provisions.

Great Choice Plus: the actual down payment assistance

The assistance itself is called Great Choice Plus — a second mortgage that helps cover your down payment and/or closing costs. THDA offers it in two structures, and the difference between them matters a great deal, so read this part slowly.

• •Deferred option: $6,000 as a forgivable second mortgage at 0% interest. There are no monthly payments on it, and it's forgiven in full at the end of the 30-year term. But if you sell or refinance before then, the $6,000 becomes due in full.
• •Amortizing option: up to 5% of the sales price, with a maximum of $15,000. This one carries the same interest rate as your first mortgage and is paid back monthly over the loan term — so it's a larger amount of help, but it's a real second payment, not a forgivable gift.

Neither option is automatically 'better.' The deferred $6,000 is essentially free money if you'll stay put and not refinance for the long haul. The amortizing option puts more cash in your hands at closing but adds a monthly payment. Which one fits depends entirely on how long you plan to keep the home and how tight your cash is up front — exactly the kind of thing worth talking through before you apply.

Homeownership for Heroes: a rate discount for service professions

THDA's Homeownership for Heroes program adds a reduced interest rate on top of a Great Choice loan for Tennesseans in certain service roles. Per THDA, eligible buyers receive a 0.5 percent (half a percentage point) discount off the current Great Choice interest rate. THDA has described that discount as saving an eligible buyer roughly $125 per month, depending on the loan. Heroes buyers can also use Great Choice Plus down payment assistance, and the first-time buyer requirement is waived for them.

As published by THDA, the eligible groups include:

• •Veterans and active military, including National Guard (discharged under conditions other than dishonorable)
• •Law enforcement officers
• •Firefighters
• •EMTs and paramedics
• •Full-time classroom teachers (added in 2026)

If you're moving to Middle Tennessee for one of these jobs — or already work in one — this is one of the most overlooked savings in the state. The half-point rate reduction compounds over 30 years into real money, and it stacks with the down payment assistance above.

Local Nashville-area assistance

Beyond the statewide THDA programs, Nashville and Middle Tennessee have local resources. These tend to have tighter income limits and limited funding, but for buyers who qualify they can be the piece that makes a purchase work.

• •The Housing Fund — a Nashville-based community development financial institution (CDFI) that makes down payment assistance loans to homebuyers across Tennessee, usable for down payment, prepaids, and closing costs. Structures and limits vary by product; they publish current terms and take questions directly at (615) 780-7000.
• •Barnes Housing Trust Fund — Metro Nashville's housing trust fund. It primarily funds affordable-housing developers, and its homebuyer-focused efforts target households at or below 80 percent of area median income. Details are published through Nashville.gov's Housing Division.

Local programs change with funding cycles, and a program that's open one quarter may be paused the next. We keep an eye on what's currently available and active, which is part of what a local team is for — there's no national website that tracks the Nashville-specific picture accurately.

Gift funds: where your down payment is allowed to come from

One of the most useful and least understood rules: a large share of your down payment can come from a gift, as long as it's documented correctly. On FHA loans, your entire 3.5 percent down payment can be a gift. Conventional and other programs allow gift funds too, with their own rules.

HUD defines an acceptable family-member donor broadly — parents, grandparents, children, siblings, aunts and uncles, stepparents, spouses or domestic partners, and others related by blood, marriage, or adoption, including legal guardians and certain in-laws. The rules that make a gift 'count':

• •A signed gift letter stating the money is a gift with no expectation of repayment. If it has to be paid back, it's a loan, and a loan changes your qualification.
• •A paper trail: the donor's bank statement showing the withdrawal and evidence of the deposit into your account (or the cashier's check / wire and matching statements).
• •Gifts can come from more than one donor on the same purchase, and can be applied to the down payment, closing costs, or reserves.

This is exactly where buyers trip themselves up — a relative hands them cash a week before closing with no documentation, and underwriting won't accept it. If family help is part of your plan, set it up early and on paper. We'll point you to a lender who will walk you and your donor through the gift letter the right way.

How these pieces actually stack

The real power isn't any one program — it's how they combine. A few realistic shapes (illustrations of structure, not quotes or guarantees):

• •A first-time buyer pairs a THDA Great Choice FHA loan (3.5% down) with Great Choice Plus deferred assistance ($6,000 forgivable) and a documented family gift — and arrives at closing having spent very little of their own cash.
• •A veteran uses a VA loan (0% down) layered with Homeownership for Heroes for a reduced rate, then uses Great Choice Plus toward closing costs.
• •A moderate-income buyer purchasing in a USDA-eligible pocket of a Middle Tennessee county finances 100% with USDA and uses assistance toward closing costs.
• •A conventional buyer puts down 3%, takes assistance toward closing, and keeps the path to dropping PMI later as equity builds.

Each program has its own eligibility math, and not every combination is available to every buyer — that's the whole point of mapping it to your situation rather than a generic checklist. But the headline is the part most people never hear: the gap between renting and owning in Middle Tennessee is usually a lot smaller than the 20-percent myth made you believe.

The order of operations we recommend

1. Get a real qualification picture from a lender who works with THDA programs — not an online estimate. This tells you which loan types and which assistance programs you actually qualify for.
2. Take the homebuyer education class early if you'll use down payment assistance; THDA requires it, and it's genuinely useful for first-timers.
3. Set up any gift funds on paper before they move, so the money is usable when you need it.
4. Confirm program-specific details — current income and price limits, current rates, USDA address eligibility, and which local programs are open — at the point you're ready, since those move.
5. Line up your loan and assistance before you fall in love with a home, so your offer is built on numbers you can actually close on.

A note for out-of-state buyers

If you're relocating to Nashville or anywhere in Middle Tennessee, you're stepping into a program landscape you've never used before, with county-by-county limits and a state agency you've probably never heard of. That's normal, and it's fixable. The mistakes we see from out-of-state buyers are almost always the same two: assuming they need a huge down payment, and assuming the programs they used (or heard about) in their old state work the same way here. They don't, and Tennessee's are often more generous than people expect.

This guide is educational and not lending, legal, or tax advice. Program terms, dollar amounts, interest rates, credit thresholds, and county income and price limits change over time and are set by the agencies and lenders that run each program. Always confirm current details with THDA, the relevant federal program, the local administrator, and a licensed lender before relying on them.