Everything You Need to Know About Buying a House in Tennessee

The average Tennessee home buyer will need mortgage preapproval, a down payment, and a credit score of at least 620.
Written by Lynell Spencer
Reviewed by Melanie Reiff
If you want to buy a house in
, you need a credit score of at least 620 and about $50,000 to cover your down payment and closing costs for the average home. If you don’t quite meet those requirements, there may be alternatives. 
If you love the idea of being immersed in Southern charm, then add Tennessee to your list of places to buy a home. The state has a lower cost of living, less expensive housing, and no income tax, so buying property there can be a bargain compared to other states in the country. 
No matter where you are looking, buying a house is a big deal. First, you need to know what you can afford and learn a little about the location that you are interested in. 
There are several steps to the home buying process, so try to get started as early as possible. Fortunately,
home insurance
is here to help by walking you through the process of buying a house in Tennessee. 
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Figure out your finances

Before you do anything else, you will need to get a clear understanding of your financial situation. This includes knowing your credit score, calculating your debt to income ratio, and figuring out what kind of mortgage payments you can afford. 

Check your credit score

For most lenders, you will need a credit score of at least 620 to qualify for a home loan. There are limited options for borrowers with lower credit scores (from the mid-500s) but those will generally come with a higher interest rate.
Even if your credit score is at 620, there is still room for improvement. Taking the time to raise your score will give you more lending options to choose from and get you a lower interest rate on your loan. 

Options for building low credit 

  • Get copies of your
    credit reports
    and review them for errors and fraudulent transactions. If you see anything questionable, dispute the transaction through the credit reporting agency. Getting items updated or removed can boost your score.
  • Pay your bills on time. Your payment history makes up about one-third of your credit score, so on-time payments are critical. You can set yourself up for success by creating a budget, and using auto-pay. 
  • Work on your credit utilization ratio. Your credit utilization measures how much available credit you have by comparing your credit card balances to your credit limits. Lenders want to see that you have credit and that you are using it responsibly. Your credit utilization should be between 1% and 30% of your limits. 
  • Pay down other debts including things like student loans, car or personal loans, or any other installment payments. This will help with your payment history and your credit utilization. 
  • Keep older credit accounts open. Your credit history makes up 15% of your credit score—keeping accounts open but with very low balances will help far more than closing them. 
  • Don’t open new accounts. Put off getting a new credit card or financing anything for at least 6 months before applying for a mortgage. 

Calculate your debt-to-income (DTI) ratio

Along with your credit score, lenders will look at your debt-to-income ratio. To figure this out, you will compare your monthly payments with your gross monthly income. 
The payments or debts that you are looking for include housing costs, credit card payments, and any installment loans. 
Conventional lenders will be looking for your DTI to be 36% or less. In Tennessee, the average monthly salary is about $3,000. The calculation would look like this: 3000 x 0.36 = 1080. That means lenders would expect your debts to be less than $1,080 per month. 

Determine your down payment 

Most conventional lenders will require a down payment that equals 20% of the house’s total cost
The average home price (for middle-tier homes) in Tennessee is $263,989. If you buy a house around this price, your down payment will be about $53,000. 
If your credit score or the size of the down payment are going to prevent you from working with a conventional lender, there are other loan options. Usually, these options are provided through state and federal government-backed home buyer programs. 
  • FHA loan: A mortgage insured by the
    Federal Housing Administration
    for lower-income homebuyers. If you qualify for an FHA loan, a lower credit score and a much lower down payment will be accepted. Expect your interest rate to be higher than a conventional loan.
  • VA home loan: A mortgage insured by the
    Veterans Administration
    for service members, veterans, and eligible surviving spouses. VA loans will also provide down payment assistance and accept credit scores in the 500s. 
  • Tennessee State assistance programs include the
    Great Choice Home Loan
    , which offers interest-free down payment assistance for homebuyers in the state. This program requires a minimum 640 credit score.

Prepare for closing costs and other fees

In addition to your down payment, you will need to prepare for closing costs. Closing costs are fees associated with the home buying process and will need to be paid when you sign your mortgage. 
In some cases, these costs can be shared between the buyer and the seller. 
Closing costs typically amount to 2-5% of the cost of the home. In Tennessee, that works out to $4,000-10,000, but generally, the number is on the low side—about $3,790.  Your closing costs will most likely encompass your:
  • Home appraisal fee
  • Credit report fee
  • Home inspection fee
  • Mortgage origination fee
  • Earnest money
  • Mortgage insurance
  • Property taxes
  • Homeowners insurance
Your closing costs will include your first year of property taxes. Tennessee has some of the lowest property tax rates in the country—about 0.64%. And as a resident of the state, you can
stop paying property taxes altogether when you turn 65
Key Takeaway The more time you dedicate to financial planning, the easier it will be to get a home loan that works for you.

Look for homeowners insurance

In Tennessee, you will likely want to make sure that your homeowners insurance provides enough coverage for tornadoes, windstorms, and other extreme weather. 
Depending on the area you reside in, you may also want to add sinkhole coverage to your policy. 
Remember that the cost of your policy will depend on where you live, your credit rating, the value of your home, and the provider that you choose. 
There are a lot of variables at play, and you want to make sure you are working with someone that has your best interests in mind. Home insurance is more controllable than other homeowner costs—if you are willing to ask questions and shop around.  
If you’d rather leave the hard work of gathering quotes to someone else, use
. The Jerry app can collect quotes from more op insurance companies, like Travelers, Nationwide, and Progressive, in seconds! 
Key Takeaway Many factors impact the cost of your homeowners insurance. Make sure you have all the information you need and shop around before deciding.

Get preapproved for a mortgage

The next step in the process is to decide on a lender and get preapproved for your mortgage. 
Mortgage preapproval should not be confused with prequalification. With preapproval, you will need to provide credit, income, and employment verification to your lender. In return, they will give you a letter letting you know the exact amount they are willing to lend you.
Once you’ve gotten your preapproval, the clock is ticking! You usually have 60-90 days to buy a house before the offer expires and you need to update your documents.

How to find the right mortgage in Tennessee

The two types of mortgage loans that are available to homebuyers in Tennessee are fixed-rate mortgages and variable-rate mortgages. 
If you choose a variable-rate mortgage, that usually means that you will have a low introductory interest rate for the first few years, and after that, your rate will be adjusted according to the market in your area. 
On the plus side, if the market is down and rates are lower, your interest rate will go down automatically. If the rates go up, however, you may be faced with an increase that you didn’t plan for. 
This option is most popular with folks who only plan to stay in their house for a few years and then move on. 
More often, people choose a fixed-rate mortgage, which locks in your interest rate for the life of the loan. This option allows you to plan long-term—and if the market drops, you can always look into refinancing your home at a lower rate.
Fixed-rate mortgages generally come with a 15- or 30-year repayment option. The longer option means lower monthly payments, while the shorter option saves you money in the long run by decreasing the total interest on your loan. 

Look for a house

Now for the fun part! Once all of the financials are in place, it is time to find a house that gives you everything you need, from the right amount of space to the perfect location.

Pick your city or neighborhood 

The vast majority of Tennessee is considered to have a humid subtropical climate, but there is a good variation in the landscape of the state, from the Smoky Mountains in the east to the Mississippi and Tennessee River Valleys in the west. 
Anywhere you choose, expect mild winters and sweltering summers.
If cost is a factor,
, Lewisburg, and
top the list of most affordable towns, while
, and Cooksville are among the most expensive. 

Buyer’s market vs. seller’s market

If it is within your control, it is advisable to wait and buy a home when the market is in your favor. 
A buyer’s market occurs when there are more properties available than there are buyers. In this type of market, you can take your time making an offer, and you have more leverage to negotiate contingencies and closing costs. 
In a seller’s market, demand exceeds supply. That means buyers are forced to compete for houses. You will need to be prepared to make an offer quickly, minimize contingencies, and consider increasing your down payment. 

Find a real estate agent

Once you have a location, look for a local real estate agent who gets you. Make sure to ask questions and be as specific as you can about what you are looking for. Your agent should make you feel comfortable and confident. 
Check out customer history, their past sales, and their portfolio to make sure they deal in the type of home you are seeking. 

Make an offer

Now that you’ve found your place, it’s time to make an official offer. Your real estate agent will help you complete the paperwork needed for this process. 
First, you will draft a written offer that states the price you are offering for the home and any contingencies you are requesting. You will need to provide your preapproval letter and a copy of your earnest money. 
Earnest money is a good-faith deposit that will be applied to your down payment if your offer is accepted. In Tennessee, this is at least 1% of the value of the home.

How to save on homeowners insurance

There are a couple of ways you can save money on homeowners insurance. The most common is by bundling your policy with other items you insure (like your car). But even bundling doesn’t guarantee you the best savings if you aren’t with the right insurer. 
Different insurers offer incentives and discounts that you may be eligible to receive, so it is important to shop around and get multiple quotes. That is where Jerry can help!
was wonderful! I used it for my auto and renters policies. I trusted it so much that I signed up for my homeowner’s insurance under Jerry as well. All of the agents are amazingly nice and knowledgeable.” —Mary Y.
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You will need around $50,000 for a down payment and closing costs on average.
In most cases, you will need a minimum credit score of 620. Some alternative lenders will consider scores in the high 500s for qualified buyers.
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