How Much to Save as a First-Time Homebuyer in Tennessee

Buying your first home is an exciting milestone, but it’s also a major financial decision that requires careful planning. If you're looking to buy your first home in Tennessee, especially in popular cities like Nashville, or Knoxville, understanding how much to save and the steps to take before starting your home search can set you up for success. Here's what you need to know about preparing financially, the steps you should take before starting your home search, and the different loan options available in Tennessee.

How Much Should You Save as a First-Time Homebuyer in Tennessee?

When purchasing a home, it’s important to have a clear idea of how much you’ll need to save, beyond just the down payment. Here’s a breakdown of the key costs:

1. Down Payment

Your down payment will be the biggest chunk of what you need to save. The amount depends on the type of loan you choose:

- Conventional Loan: Typically requires 5% to 20% of the home’s purchase price. For a $350,000 home (around the median price in Tennessee), you’ll need to save $17,500 to $70,000.

- FHA Loan: Requires as little as 3.5% down, so for a $350,000 home, you would need to save $12,250.

- VA or USDA Loans: For those eligible (veterans or those purchasing in rural areas), these loans offer a 0% down payment option.

2. Closing Costs

Closing costs typically range from 2% to 5% of the home’s purchase price. For a $350,000 home, you should budget around $7,000 to $17,500 to cover expenses such as:

- Down payment

- Home inspection

- Appraisal fees

- Title insurance

- Prepaid property taxes and homeowner’s insurance

3. Emergency Fund

It’s a good idea to have extra savings for unexpected home repairs or maintenance. A general rule is to save about 1-3% of the home’s price for emergency funds, so for a $350,000 home, you should have $3,500 to $10,500 set aside.

4. Additional Costs

Don’t forget to factor in moving costs, new furniture, appliances, and immediate home improvements. This could add another $1,000 to $5,000 depending on your needs. Our team has personally used movers and can send you a list of recommended companies!

Steps to Take Before You Start Your Home Search

Before diving into your home search, here are the crucial steps you should take:

1. Check Your Credit Score

Your credit score will determine your mortgage options and interest rates. The higher your credit score, the better your chances of securing a favorable mortgage. If your score needs improvement, consider paying down debt or disputing errors on your credit report.

2. Create a Budget

Sit down and take a close look at your finances. How much can you comfortably afford for a monthly mortgage payment? A good rule of thumb is to keep housing expenses at or below 28% of your gross monthly income. Additionally, your total debts, including your mortgage, should not exceed 36% of your income. One of the first things we'll ask when starting your home search is, "What’s your price point?". A good tool to check out is, Bankrate’s How Much House Can I Afford.

3. Get Pre-Approved for a Mortgage

Getting pre-approved for a mortgage will give you a clear understanding of how much you can borrow. It also shows sellers that you are a serious buyer. Pre-approval involves a lender reviewing your financial situation and giving you a conditional loan amount based on your income, credit score, and debts. Morrell Property Collective has lenders that we highly recommend using. We’re happy to share their contact information with you!

4. Save for a Down Payment & Closing Costs

While some loan programs offer low or no down payment options, it’s still a good idea to save as much as possible to cover closing costs and avoid private mortgage insurance (PMI), which is often required with down payments under 20%.

5. Research the Market

Understand the housing market in the area you want to buy. Research home prices, neighborhood trends, and how competitive the market is. This will help you make informed decisions when it’s time to make an offer. Follow along on our socials to stay up to date on neighborhood market trends!

Loan Options for First-Time Buyers in Tennessee

There are several loan options available to first-time homebuyers in Tennessee that can make homeownership more affordable.

1. Conventional Loans

These loans are offered by private lenders and typically require a down payment of at least 5%. Conventional loans are ideal for buyers with good credit and the ability to make a larger down payment.

2. FHA Loans

The Federal Housing Administration (FHA) offers loans with down payments as low as 3.5% for buyers with credit scores as low as 580. This can be a great option for first-time buyers who may not have a large down payment saved up or have lower credit scores.

3. VA Loans

If you are a veteran, active-duty military member, or eligible family member, you can take advantage of VA loans, which offer 0% down payment and competitive interest rates. This is one of the best loan options available but is only for those who meet specific military service requirements.

4. USDA Loans

For buyers looking to purchase a home in rural areas of Tennessee, the USDA offers loans with a 0% down payment. These loans are designed to promote homeownership in less densely populated areas.

5. THDA Great Choice Home Loan

The Tennessee Housing Development Agency (THDA) offers the Great Choice Home Loan program, designed to help first-time homebuyers in Tennessee. It offers a fixed interest rate and can be paired with down payment assistance programs. Buyers must complete a homebuyer education course to qualify.

Morrell Property Collective offers an incredible Buyer's Guide to our clients completely free. This comprehensive guide walks you through the entire buying process, outlining every step in detail so you know exactly what to expect. You can download the guide here, or schedule a consultation with our team to review the guide together during a buyer's consultation.