Home buying October 19, 2023

Your Comprehensive Guide to a Successful Home Purchase in Tennessee for 2023

How to Successfully Buy a House in Tennessee in 2023

Buying a house in Tennessee in 2023 can be an exciting yet challenging endeavor. Whether you’re a first-time buyer or looking to make a strategic real estate investment, navigating the ever-changing housing market requires knowledge and meticulous planning. In this comprehensive guide, we will walk you through the steps to buy a house in Tennessee successfully. With the market conditions favoring buyers, now is the perfect time to capitalize on lower home prices and stable mortgage rates.

Key Takeaways

Benefit From Declining Home Prices: In the first quarter of 2023, median home prices in Tennessee dropped to $436,800 from $479,500 in the fourth quarter of 2022.

Take Advantage of Stabilizing Mortgage Rates: The 30-year fixed mortgage rates are expected to stabilize between 6% to 6.5% in 2023, providing an opportunity to secure a favorable interest rate.

Maintain a Healthy Credit Score: Aim for a credit score of 670 or higher, as a higher credit score can result in a lower interest rate. The median credit score for buyers in the third quarter of 2022 was 768.

Plan Your Down Payment & Closing Costs: Allocate approximately 20% of the home’s sale price for a down payment and budget an additional 2% to 5% of the total purchase price for closing costs.


7 Steps to Buying a House in Tennessee


Step 1: Check Your Financial Health

Before embarking on your home-buying journey, it’s crucial to ensure that you are financially prepared. Here are some essential steps to take:

Calculate Your Home Affordability: Utilize home affordability calculators to assess your financial readiness. These tools consider your income, debts, location, and down payment to determine your monthly mortgage payment and other homeownership costs.

Check Your Credit Score: Obtain your credit score reports from any of the three major credit bureaus – Equifax, Experian, or TransUnion. A higher credit score can lead to a lower interest rate, and you can access one free credit report annually.

Prove a Steady Employment History: Lenders will scrutinize your employment history to ensure that their investments are secure. They will assess your job profile, work history, and family background, so maintaining a stable employment record is essential.

Review Your Debt to Income Ratio (DTI): Calculate your DTI ratio by dividing your monthly debts by your gross monthly income. Most lenders consider a DTI of 36% or less to be a safe level for borrowing.


Step 2: Plan Your Down Payment and Closing Costs

Once you know how much house you can afford, it’s time to plan your down payment. While a 20% down payment is typical, you can choose the amount that best suits your financial situation. Keep in mind that if you put down less money upfront, your lender may require you to purchase private mortgage insurance. Closing costs in Tennessee can come as a surprise for first-time buyers, so budget an additional 2% to 5% of the total purchase price for these expenses.


Step 3: Get the Preapproval Letter For Your Mortgage

The mortgage pre-approval stage is crucial in determining how much money you can borrow to purchase a home in Tennessee. A pre-approval letter signifies that you are a serious buyer working with lenders to finance a home. Before applying for pre-approval, it’s essential to understand the types of home loans available:

Conventional Mortgages: These loans are not backed by a government agency and are available through private mortgage lenders in Tennessee, subject to their guidelines, down payment requirements, credit score criteria, and interest rates.

FHA Loans: The Federal Housing Administration provides FHA loans to borrowers with lower credit scores and higher debt-to-income ratios. It’s important to note that lower credit scores may result in higher interest rates.

VA Loans: The United States Department of Veterans Affairs offers VA loans to veterans. These loans require no down payment and have lenient credit requirements, making them accessible even for those with bad credit.

USDA Loans: Low to moderate-income home buyers in rural areas can apply for USDA loans. These loans offer zero down payment options but come with USDA closing costs of 2% to 6%.


Step 4: Start Your Home Search

Traditionally, home buyers are assisted by real estate agents in the home-buying process, who help shortlist properties based on your preferences. However, you can also explore Tennessee For Sale By Owner (FSBO) websites, where you can find properties listed by owners. When shopping for homes, keep these points in mind:

See Homes In-person: While viewing property listings online is a good start, visiting shortlisted properties in person is essential to get a feel for your potential future home and the neighborhood.

Keep Your Schedule Open: Ensure you have the flexibility to view newly listed properties and attend open houses in the areas of your interest.

Attend Open Houses: Exploring the neighborhoods you’re interested in and attending open houses is a great way to get a sense of the local community.


Step 5: Make an Offer

Once you’ve found a home you want to buy, it’s time to make an offer. Your offer should include the offer price, a preapproval letter, and proof of funds for the down payment. Additionally, include any contingencies and terms of purchase. Home buying contingencies typically include a home appraisal and property inspection. You have the option to waive some contingencies or offer cash to make your offer more attractive to home sellers. In most cases, home sellers may make counteroffers, leading to a negotiation phase. After your offer is accepted, both parties will sign the purchase agreement, and an escrow account will be opened, requiring a deposit of 1% to 2% of the purchase amount.


Step 6: Schedule a Home Inspection & Appraisal

A home inspection is crucial to identify any issues or defects in the property. Hire a professional Tennessee home inspector to conduct a thorough assessment and provide a detailed report. This report will highlight any structural or mechanical issues that may need attention. Based on the inspection report, you can either request repairs from the seller or back out of the deal if the property has significant defects. Your mortgage lender will also require a property appraisal to ensure that the loan amount does not exceed the fair market value. Hire a professional Tennessee home appraiser to determine the property’s current market value. If the appraisal falls short of the purchase price, you may need to increase your down payment or renegotiate the offer.


Step 7: Close the Sale

Once all contingencies have been met, and you are satisfied with the final walk-through, it’s time to close the deal. During the closing process, you will pay the closing costs, sign the necessary paperwork, and receive the keys to your new home. Three days before closing, your lender will provide you with a closing disclosure, containing all the details of your mortgage, including the type of mortgage, monthly payment, loan term, interest rate, mortgage origination fees, and the funds you need to bring to the closing. The closing will typically involve you, your real estate agent, the seller, their agent, and the settlement agent, who can be a real estate attorney, escrow representative, or a title company. At this stage, you will wire the closing costs and down payment to the escrow, which will then transfer the funds to the seller after deducting the necessary expenses.

Tips For Buying a House in Tennessee

Purchasing a home in Tennessee can be an overwhelming yet exciting journey. Here are some tips to help you prepare:

Prioritize Early Saving: Calculate both one-time and recurring costs, such as the down payment, closing costs, move-in expenses, and property taxes, and start saving in advance.

Maintain a Healthy Credit Score: Your credit score significantly impacts your eligibility for home loans and the interest rates offered. Pay your bills on time, keep your credit cards open, and regularly monitor your payments to maintain a high credit score.

Organize Loan Paperwork: Lenders will require various financial reports to verify your income, assets, and debts. Keep all necessary documents, including tax returns, W-2s, 1099s, and bank statements in one place for easy access.

Explore First-Time Homebuyer Programs: Investigate first-time homebuyer programs offered by states and cities, which can provide benefits such as low-interest rate loans, down payment assistance, and help with closing costs.

Bottom Line

In conclusion, the current housing market in Tennessee offers favorable conditions with declining home prices and stabilizing mortgage rates. To confidently embark on your journey to homeownership, it’s essential to plan your down payment and closing costs in advance and maintain a healthy credit score. By following the actionable steps and tips provided in this article, you can navigate the 2023 Tennessee housing market with confidence and make your dream of owning a home a reality. -Jason