Tennessee home buyers still have a great opportunity to purchase a home with NO down payment. Did you know that USDA (United States Department of Agriculture) and Rural Housing still offer 100% home loans through approved mortgage lenders? In the past, many people thought of USDA as loans only for farmers and used only to purchase properties in remote agricultural areas.
That is not the case today with the Tennessee USDA Rural Development home loan. In fact, many homes may still eligible just outside of Tennessee’s major metropolitan cities like Nashville, Memphis, Knoxville, Chattanooga, etc. A USDA loan provides low-cost government-insured home mortgage that fit a variety of home buyers.
The program is especially great for Tennessee first time home buyers that have little to no cash savings for a large down payment. USDA is one of the few programs today that allows 100% home financing in TN.
First, let’s discuss the different USDA mortgage types: Currently, there are two kinds of USDA loan programs available for single-family households:
Tennessee USDA 502 Guaranteed Rural Housing Loans:
USDA 502 Guaranteed Loans are the most common type of USDA loan and allow for higher income limits and 100% financing for home purchases. USDA Guaranteed Loan applicants may have an income of up to 115% of the median household income for the area. The 2025 USDA income limits in Tennessee start at about $112,450 per year for a family of 1-4. Even higher, up to $148,450 for families with 5+ members. The income limits are even greater in more high-cost counties like Davidson, Williamson, etc.
Household size and county also determine the allowed income limits, please contact us below to discuss the income limits in your county. Most home buyers will fall under the moderate-income 502 Guarantee program – this program is offered solely by USDA-approved lenders and banks.
*Need assistance calculating your household income for eligibility? Just submit the Info Request Form on this page to speak to a specialist today.
All USDA-guaranteed loans carry 30-year terms and are set at a fixed rate, with no adjustable-rate terms.
USDA Direct Rural Housing Loans:
USDA Direct Housing Loans are only offered directly by the USDA – unlike the 502 Guaranteed program above. These loans are less common than the USDA 502 Guarantee Program and are only available for low and very low-income households to obtain homeownership, as defined by the USDA income eligibility requirements.
Very low income is defined as below 50 percent of the area median income; low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Click here to see area income limits for this program.
Tennessee 502 Guaranteed USDA Loan Requirements:
- Currently, a min 620 credit score is required by most lenders.
- The home being purchased must be located in a USDA-approved area. See the map here. The good news is 90% of the land mass in TN is eligible for USDA Rural Housing. *Buyers in more populated locations not USDA approved can contact us about other 100% down payment assistance options available.
- Household income must be below the income limit per county
- USDA permits the home seller to pay buyer closing costs – up to 6%
- USDA home loans do not have a set loan amount limit. The borrower qualifies based on their debt-to-income ratios. The current debt-to-income ratio limit is 34/42. This can be exceeded in some cases with strong compensating factors like great credit, great job history, assets, etc.
Like most loans that require less than 20% down payment, the USDA mortgage program will require an upfront guarantee fee and mortgage insurance or PMI. Effective 20254, USDA mortgage insurance rates (PMI) are:
- For purchases and refinance programs – 1.0% upfront guarantee fee is paid at closing, based on the loan size. The guarantee fee is allowed to roll into the borrower’s loan amount. So if your purchase price is $300,000 for example, your final adjusted loan amount would be $303,000.
- For all purchase and refinance loans, a 0.35% annual fee (monthly PMI) is based on the remaining principal balance. This is the monthly premium added to the buyer’s payment each month (like taxes and home insurance) All USDA loans include taxes, home insurance and mortgage insurance.
Interesting facts about the USDA program:
- USDA loans are a fix 30-year mortgage terms with very competitive 30 year fixed interest rates.
- USDA loans do not have pre-payment penalties – move or sell your home anytime.
- USDA loans do not require a down payment
- The program does require monthly mortgage insurance, but the monthly amount is nearly half the amount of a comparable FHA home loan.
- Already owned a home in the past? That’s ok, you aren’t required to be a first-time homeowner.
- There is no special first-time buyer class needed to apply. Contact us below and have your USDA loan application completed in minutes!
- USDA offers great refinance options for home buyers should interest rates decrease in the future.
Tennessee home buyers who have questions or want to learn how to apply can call us, or just submit the short Info Request Form on this page for quick service.