Buying a house in Tennessee: A how-to

If you’ve been dreaming of a new home in the Volunteer State, you might be trying to answer a tough question: Should you buy a house now or wait? Rates have increased quite a bit from all those record-low headlines you saw during the peak of the pandemic, so buying a house in Tennessee is certainly looking a lot more expensive these days.

However, there are positive signs for buyers that indicate some relief is on the way. For example, in the popular Nashville area, median sale prices decreased by nearly $9,000 from May to July, according to Greater Nashville Realtors data. And no matter where in the state you’re looking to live, you’re going to have more choices: Redfin data shows that the number of homes for sale in Tennessee is the highest since July 2020.

If you have good credit and you’re committed to calling Tennessee home, starting the homebuying process now means you can stop throwing away money on rent soon. Read on for everything you need to know about how to buy a house in Tennessee.

How to buy a house in Tennessee

Decide where to live in Tennessee

Buying a house in Tennessee means deciding where exactly in the state you want to plant roots. From the legendary music scene and growing skyline of Nashville (named one of Bankrate’s best places to live in the entire country) to the scenic Blue Ridge and Great Smoky mountains, there are places that fit every lifestyle.

As you put together your budget for a house, you’ll want to think about all the expenses outside your mortgage payment, too: utilities, food, entertainment, transportation and more. Bankrate’s cost of living calculator can offer guidance in how different parts of Tennessee will impact your personal finances. For example, the cost of living in Chattanooga is around 8 percent higher than it is in Memphis.

As you think about buying a home for today, make sure you consider what life will look like tomorrow, too. If you’re a young first-time homebuyer, will you be starting a family soon? You’ll want to consider childcare and schools in the area. Or, if you’re winding down your working years, will you be looking to enjoy retirement without worrying about home maintenance? Perhaps a property in a homeowners association that handles lawn care and cleaning duties could be a good option.

Tips for buying a house in Tennessee

How much are you going to need to borrow to buy a home in Tennessee? It’s an important question to answer before you start looking at mortgage rates. Depending on how much you need to borrow, you may need to apply for a jumbo loan, which means you’ll need excellent credit and a larger down payment than a conventional loan. Across most of the state, the 2022 conforming loan limit is $647,200 — but there are some exceptions in middle Tennessee, where home values have been increasing. Counties like Davidson, Williamson, Maury and other neighboring areas have a slightly higher limit of $694,600.

Things to know about buying a house in Tennessee

• Property taxes: Good news: Property taxes in Tennessee are very low compared with most of the country – just 0.68 percent of a property’s assessed value, according to data from the Tax Foundation. However, property tax bills vary by county. You’ll pay quite a bit more in Williamson County than you will in Decatur County, for example.
• Dual agency: When you’re choosing a real estate agent to help you buy a home here, keep in mind that Tennessee law permits dual agency. That means that your agent could also represent the owner of a house you want to buy, which brings up the potential for a conflict of interest. If this is the case, though, you will be asked to provide written consent.
• Seller’s disclosure: Tennessee sellers are legally required to complete a property condition disclosure form that outlines any defects that could impact the home’s value or safety. Even so, you should still have the home professionally inspected, to ensure that there are no major issues.
• Closing costs: In 2021, the average closing costs for a Tennessee homebuyer added up to $3,911, or 1.4 percent of the purchase price, according to data from ClosingCorp. However, that bill may not fall entirely on your shoulders. You can always negotiate to try to get the seller to cover a portion of the closing expenses.
• Attorneys: While Tennessee does not require you to hire a real estate attorney, you should strongly consider doing so anyway. Buying a home is a huge expense, with lots of complicated contract language, and professional legal expertise can help protect your interests.
• Climate and weather considerations: When you’re buying a home in Tennessee, you’ll need to consider whether a standard homeowners insurance policy will be enough to protect your investment. Despite being a landlocked state, there are serious flood risks here — in Chattanooga, for example, 42 percent of properties are in position for potential flood damage. Additionally, wildfires pose a serious threat to many residents in the state, especially near the Great Smoky Mountains. Be sure to ask how homeowners insurance costs will impact your bottom line when comparing properties.

How much house can I afford in Tennessee?

When you’re trying to figure out how much you can spend on a house, start by thinking about how much you earn. Financial experts warn against spending more than 28 percent of your income on housing payments. So, if you’re bringing in $6,000 each month, your mortgage payment shouldn’t exceed $1,680. You’ll need to consider your other expenses too, such as student loans, car payments and credit card balances. Use Bankrate’s new-home calculator to get an estimate of how much you can comfortably spend based on some key inputs, including how much you plan to contribute to a down payment.

Saving for a down payment in Tennessee

If you’re struggling to save up for a down payment, there are some options designed to help first-time homebuyers in Tennessee. The Tennessee Housing Development Agency allows eligible borrowers to get up to $7,500 of down payment assistance through its Great Choice Plus program. However, it’s important to note that this money isn’t always free: One of the options is a second mortgage with the same interest rate borrowers are charged for THDA loans. There is a deferred option that will let you get away without paying the money back if you live in the home for 30 years without refinancing the mortgage — but that’s a very long time, especially without the ability to take advantage of savings when rates drop. If you refinance or sell, the full amount is due.

If you’re trying to buy a house but earning less than you would like, be sure to look for programs that are built to help low- and moderate-income buyers. In Memphis, qualifying as a low-income homebuyer may help you secure down payment assistance funds that are forgiven (meaning you won’t have to pay them back) after five years.

Get preapproved for a mortgage

After you have an idea of how much you can put down upfront, it’s time to give a lender an idea about the rest of your finances. Gather documents about your tax returns, pay stubs and other income sources to secure a preapproval for a mortgage. Getting preapproved is a crucial step on the road to owning a home, and it doesn’t take much time at all. In fact, some online lenders will issue automated preapprovals in just 15 minutes. The letter will back up your credibility as a buyer; sellers want to know that you’re going to be able to actually secure the money to close the deal.

Find the right lender

Just because you’re buying a home in Tennessee doesn’t mean you have to find a lender with an office in the Volunteer State. Some of the best lenders in Tennessee can handle all of your application needs online. Every lender is different, though. Compare offers from at least three different companies to see who can offer a combination of low rates, low fees (or no fees at all) and high marks for customer service. Ask how quickly they can close, too. And remember, you’re not obligated to go with the company that issued your preapproval.

Find the best local real estate agent in Tennessee

While your lender can be based anywhere, your real estate agent should be an expert in the local market where you’re hoping to buy. The best agents know exactly what’s happening in their area — how quickly properties are selling, whether buyers are bidding over the asking price — and they will have relationships with other agents to help point you to properties that meet your needs.

If you’re planning to move to Tennessee from somewhere else in the U.S., a real estate agent is even more essential. Buying a home from out of state is no easy task, so be sure to ask agents about their experience helping other buyers navigate the market from afar.

Start house hunting and make an offer

With your agent in place, it’s time to get serious about finding a home. If you’re on a tight budget, start the process with an open mind. While you may want a four-bedroom house with a finished basement just 10 minutes away from your office, you might need to balance your must-haves and your can-live-withouts. Buying a home can be a game of compromise: Are you willing to deal with a longer commute in order to get that four-bedroom with a finished basement? Or does a three-bedroom house just five minutes from your office look better?

When you find a place that you want to call your own, your real estate agent will help you determine how to craft a compelling offer that catches the seller’s attention. Then, be prepared for some back-and-forth negotiation. If you find yourself competing against another buyer, come to the bidding war with a strategy to win the deal.

Get a home inspection and appraisal

Paying for a home inspection is one of the smartest things you can do as a buyer. There are so many what-ifs in real estate: What If there are hazardous materials in the home, what if the plumbing has some hidden issues, what if the roof is in need of repair? A home inspection can put your mind at ease and verify that you’re making the right decision — or not.

While the home inspection is up to you, an appraisal is not optional if you’re financing your purchase with a mortgage. The lender will require it: It’s a way for them to verify that the home is worth the price you are planning to pay (with help from their money). That way, if you ever stop paying back your loan, the lender has a reasonable assurance that it can recoup its losses.

Final walk-through and closing on your new Tennessee home

What if something gets damaged between the home inspection and the closing day? A final walk-through will alert you to any lingering issues that need to be resolved. Bring a checklist to follow along with, to make sure you don’t miss anything.

Once you’re satisfied with the walk-through, you’re ready to close. Your agent and attorney will help you prepare for the closing and walk you through how to pay for your closing costs. You’ll likely need a certified check or cashier’s check, so leave yourself plenty of time to get one. The closing disclosure, which you’ll receive at least three business days beforehand, will tell you exact amounts. Practice your signature, because you’re going to be autographing a lot of documents at the closing table. But then, you can head to your home to unlock your front door with your keys. Congrats, you’re officially a Tennessee homeowner.

FAQs

• What are the requirements to purchase a home in Tennessee?

  If you can’t pay for a home in cash (and who can these days?), you’ll need to satisfy a lender’s requirements to buy a home in Tennessee. For most buyers, that means having a minimum credit score of 620 and a low debt-to-income ratio, along with enough money for a down payment of at least 3 percent of the purchase price. There are some exceptions, though: FHA loans may be available to buyers with credit scores as low as 500. And if you are worried about the down payment and closing costs, there are assistance options available for low-income buyers.
  

• Is it hard to buy a house in Tennessee?

  Buying a house in Tennessee has been challenging over the past two years, particularly for buyers on tight budgets. There aren’t enough homes for sale to keep up with demand, which has pushed prices higher. However, the market is beginning to become a bit more buyer-friendly. The number of homes for sale increased by 16 percent between July 2021 and July 2022, according to Redfin, and the number of homes with price drops has been increasing since February 2022.
  

• What credit score is needed to buy a house in Tennessee?

  Most lenders will want a minimum credit score of 620 for anyone applying for a conventional loan. However, to qualify for the lowest mortgage rates you’ll need a much higher score – more like 740. If you want to secure assistance through one of the Tennessee Housing Development Agency’s first-time homebuyer programs, you will need a minimum credit score of 640. Borrowers with subpar credit should look for lenders that offer FHA-backed loans. In some cases, these lenders will approve credit scores as low as 500, but they will expect a much higher down payment in exchange.