Tennessee FHA Loan Limits: Requirements, Applications, and Closing Costs [2022]

Tennessee FHA Loans provide the state’s homebuyers with more affordable loan options than a traditional loan. At The Home Loan Expert, we’ve helped Tennessee residents manage FHA Loan Limits from Shelby County to Williamson County!

What are those FHA loan limits and requirements in Tennessee? We’ll cover it all here. 

What is an FHA Loan? 

If you are a first-time homebuyer or have a low-to-moderate income, an FHA loan may be just what you need to become a homeowner. FHA Loans are mortgages from private lenders that are insured by the government. Banks and other lenders are willing to work with “higher risk borrowers,” because they know that the Federal Government is backing the loan.

The FHA Loan program traces its roots back to the Great Depression in the 1920s when the housing market drastically decreased as a result of the banks failing. It was created to give banks insurance protection, and to assist homeowners and new home purchasers when the foreclosure rates and defaults on loans were skyrocketing. 

It now operates primarily to help borrowers that can’t afford a down payment or won’t qualify for private mortgage insurance (PMI) as a sort of insurance policy for the bank through the FHA. 

What is the FHA? 

The Federal Housing Administration, or FHA, is a government agency operating within the U.S. Department of Housing and Urban Development (HUD). The goal of the FHA is to make mortgages accessible and affordable for lower-income and first-time homebuyers, multi-family rental properties, hospitals, and residential care facilities. 

They do this by insuring the loan, thereby protecting the mortgage lenders from potential losses. 

The Federal Housing Administration was established in 1934 during the Great Depression when large down payment requirements of 30-50% and short mortgage periods of five to 10 years meant that home ownership was out of reach for working-class families.

Once the FHA was established–and with the granting of FHA-secured loans–down payment requirements went down and the mortgage lifespan grew to 20-30 years. Since 1934, the FHA has insured over 50 million mortgages throughout the U.S. and is the largest mortgage insurer in the world. 

What is an FHA Loan Limit? 

To prevent overborrowing and foreclosures, the FHA has loan limits: the maximum loan amount you can borrow while still having the FHA insure that loan. FHA Loans have been a success for many homeowners, and offer many people greater affordability and access to credit that they otherwise might not be eligible for with a regular bank. 

How are FHA Loan Limits Determined?

The FHA determines loan limits based on the region, cost of living, average construction costs, and the average home sale price for a particular area. Every year, the FHA updates the FHA Loan limit depending on changes in all the above factors for different states and counties. 

Areas with lower costs have a “floor” limit that is lower than average, while higher-cost areas have a “ceiling” limit that is higher than average.  Otherwise, the FHA Loan limit is typically 115% of the median price of a state or city’s average home, provided the amount is before the area’s ceiling and floor limits. 

Some regions are considered “special exceptions,” where the FHA allows for higher loan limits due to increased construction costs. 

What are the FHA Loan Limits in Tennessee?

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For most counties in Tennessee, the FHA loan limit for a single-family home is $420,680. However, the limit could go up to $694,600 in some higher-priced counties, such as Cheatham and Davidson county. 

FHA Loan Limits in Shelby County, TN

The FHA loan limits in Shelby, County, TN are as followed:

  • Single-family: $420,680
  • Duplex: $538,650
  • Triplex: $651,050
  • Quadplex: $809,150

FHA Loan Limits in Williamson County, TN

The FHA loan limits in Williamson County, TN are as followed:

  • Single-family: $694,600
  • Duplex: $889,200
  • Triplex: $1,074,850
  • Quadplex: $1,335,800

FHA Loan Requirements in Tennessee & How to Apply

Individual lenders might have some variations in their FHA Loan requirements, but the basics are the same. Before anything else, you’ll need: 

  • Valid Social Security number
  • Proof of residence in the United States
  • Legal age according to your state

After you meet these qualifications, an FHA Loan is easier to obtain than a traditional mortgage. Here are some more specific FHA Loan requirements: 

  • Minimum credit score: 500
  • Loan term length: 15 or 30 years
  • Minimum down payment: 3.5% for credit scores over 580; 10% for credit scores between 500-579
  • Down payment gift: Entire down payment can be a gift
  • Down payment assistance: Programs available
  • Mortgage insurance: Upfront and every year for the life of the loan or 11 years
  • Mortgage insurance premiums: 1.75% up front; 0.45%-1.05% annually 

If your credit score is less than 500, consider lowering your debt-to-income ratio, setting alarms to avoid late payments, or delaying your mortgage application until your credit score is a bit higher. 

To apply for an FHA Loan, start your loan approval process today!

FHA Loans in Tennessee

Current FHA Mortgage Rates in Tennessee

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The current FHA mortgages rates in Tennessee are as followed:

  • 15-year fixed rate: 5.75 %     [6.825% APR]
  • 30-year fixed rate: 5.125%     [6.897% APR]

What are the closing costs of an FHA Loan in Tennessee?

In Tennessee, FHA loans require a minimum of 3.5% financial commitment from the applicant. The loan allows for the seller to pay all closing costs up to 6%, which is generally enough to take care of most property sales. 

What will disqualify an FHA Loan? 

FHA Loans require certain criteria in order for homes to meet the minimum standards for a loan to be approved by a participating lender. Reasons an FHA Loan may be disqualified are:

  • Homes must be primarily residential: If the home is not primarily used for residential purposes and has 50% or more floor space is taken up for non-residential use, it cannot qualify for an FHA mortgage.
  • Compliance issues and FHA appraisal standards: If a home is in a state of severe repair it may be disqualified for an FHA loan. However, there are FHA Rehabilitation loans for homes that do not pass an appraisal for the typical FHA loan.
  • Home may be near certain flood zones without insurance: Certain natural disaster zones do not automatically disqualify a home buyer from an FHA loan. However, if the necessary insurance is not available in the area it may result in disqualification. 
  • Property is too close to potential hazards: If the home is too close to areas that are considered “potential hazards” like high voltage electrical wires, mining, and high-pressure gas lines, an FHA loan may not be possible.
  • Transient occupancy properties are not in compliance: FHA loans cannot be used on homes that will be rented out to individuals that will be staying at the property for less than 30 days. FHA loans cannot be used for bed-and-breakfasts, condo hotels, Airbnb’s, and other occasional rentals. situations. 

Types of FHA Loans

There are specialized FHA mortgage loans for specific audiences that can help you afford your dream home. Here’s a bit about each one: 

Traditional Mortgage Loan: This is a regular mortgage loan that applicants can use for their primary residence. 

203(k) Mortgage Program: This is a traditional mortgage with extra money added for home repairs and renovations. If you purchase a home that needs some TLC, this is the loan for you. 

Section 245(a) Loan: Maybe you started a business and need a few months to get the profits flowing. Or, you’re promised a promotion in the next few months at your current corporate job. This Graduated Mortgage Payment (GPM) loan starts with monthly payments at a certain amount that increases over time. You can also opt for the Graduated Equity Mortgage (GEM) loan, which increases monthly principal payments specifically over time to gain more equity in your home faster. 

FHA Energy-Efficient Mortgage: Interested in making environmentally friendly home upgrades to save energy? This loan includes extra funds to do so. Examples of eligible upgrades include new solar panels or insulation to retain heat. 

Home Equity Conversion Mortgage (HECM): If you’re a senior, you might struggle to find retirement options if you don’t have a solid pension plan. The Home Equity Conversion Mortgage (HECM) is a reverse mortgage that offers mortgage payments to the applicant in exchange for equity in their home. You can receive the payments every month or withdraw them at your discretion through a line of credit. You might consider a combination of these two options. 

FHA Loans vs. Conventional Loans

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Depending on your financial situation and loan needs, FHA loans can have many benefits over conventional loans, such as: 

  • Lower qualifying credit scores
  • Lower down payment requirements with more flexibility regarding the origin of the down payment (personal savings, gift, or even grants).
  • Candidates can have a higher debt-to-income ratio

While these benefits make FHA loans appealing, there are some conditions to be aware of:

  • FHA loans are only available for certain types of properties
  • Some loans may require closing costs that don’t exist with conventional loans
  • Every FHA loan requires mortgage insurance built into the loan
  • Lenders may have their own rates, fees, and approval processes separate from the FHA, so research is needed
  • FHA loan limits restrict your borrowing power

Conclusion: Getting an FHA Loan in Tennessee

Our process for home loan approval allows us to quickly process and approve FHA loans for families, giving them a way to move into their dream home and establish their lives. Since 2002, we’ve closed over $500 million in FHA loans for families in Indiana, Missouri, Illinois, Wisconsin, and Iowa…and now Tennessee!

If you’re considering an FHA Loan in Tennessee, you’ll want an experienced team to get you through the application process and to your closing. At The Home Loan Expert, we’re always happy to sit down with our clients and offer them personalized support to make their homeownership dreams come true. 

Contact us today for a consultation or get started with our 5-minute loan approval application today.

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