Compare Current Mortgage Rates in Tennessee

When you apply for a mortgage, the interest rate you receive plays a huge role in your ability to afford a home. A high interest rate means that not only will your monthly mortgage payments be higher, but you’ll also pay more over the life of the loan.

If you’re a first-time homebuyer in Tennessee, you may be wondering what kind of interest rate you’ll qualify for. Before applying for a mortgage, it’s a good idea to understand how mortgage rates in Tennessee work and the different factors affecting them. This information will help you determine how to find the best rates on your home loan. 

Here are the biggest factors influencing Tennessee mortgage rates:

• Federal Reserve: The Federal Reserve does not set mortgage rates, but it indirectly influences them by adjusting the federal funds rate. The Fed can also affect mortgage rates by buying or selling mortgage-backed securities. 
• Economic conditions: Economic conditions also play a role in mortgage interest rates. When the economy is strong and job growth is high, mortgage rates will start to increase. Alternatively, if the country enters into a recession, mortgage rates will go down. 
• Inflation: Inflation refers to the price of goods and services. When inflation increases, the price of everything else starts going up as well, including mortgage rates. So during periods of high inflation, mortgage interest rates tend to rise. 
• Buyer demand: When fewer buyers are purchasing homes, the reduced demand for mortgages will push interest rates down. But as buyer demand picks up, interest rates will too. 

Tennessee offers first-time homebuyer programs through the Tennessee Housing Development Agency. If you’re a new homebuyer in Tennessee, here are two programs you can consider:

• Great Choice: A Great Choice home loan comes with fixed interest rates and 30-year loan terms. You need a minimum credit score of 640 to qualify and you must fall below the maximum income and purchase price limits for your county. 
• Great Choice Plus second loan: You can also apply for a Great Choice Plus second loan for assistance toward your down payment or closing costs. If you qualify, you’ll receive a $6,000 forgivable second mortgage on your home. The loan comes with a 0% interest rate, and payments are deferred for 30 years, at which point the loan is forgiven. 

If you want to apply for a Great Choice loan, you’ll start by attending a homebuyer education class. This class will teach you how to determine the type of home you can afford and how to apply for a loan. It’ll also walk you through home maintenance basics and how to manage your budget after you’ve bought a home.

Tennessee mortgage rates depend on factors that you may or may not be able to control. Fortunately, there are steps you can take to lower your interest rate:

• Improve your credit score: A poor credit score doesn’t automatically disqualify you from taking out a mortgage, but you will get hit with higher interest rates. Borrowers with credit scores of 740 or higher will qualify for the best rates and terms on their home loan. You can improve your credit score by paying down debt and paying your bills on time. 
• Pay off debt: Your debt-to-income ratio (DTI) shows lenders the percentage of your gross monthly income that’s going toward debt payments. A high DTI indicates that you could be overextended financially and are more of a lending risk. Paying down outstanding debt will improve your DTI and help you qualify for better mortgage rates. 
• Increase your down payment: You can qualify for a conventional loan with a down payment as low as 3%, but you’ll have to pay for private mortgage insurance (PMI). PMI is charged as either an upfront or monthly premium. Making a 20% down payment will help you avoid PMI and score better rates on your mortgage. The more you can put toward your home, the less risk the lender has to take on. 
• Shop around: Your interest rate and mortgage terms can vary significantly based on the lender you work with. To ensure you’re getting the best rate and terms, you should get prequalified and compare offerings from at least three different mortgage lenders. 
• Buy mortgage points: When you buy mortgage points, you pay an additional fee to lower your interest rate. Each point costs 1% of your total loan amount and gets you an interest rate that’s 0.25 percentage points lower. If you plan to stay in your home for a long time, purchasing mortgage points may be worth it.

There are several different types of mortgages you can apply for in Tennessee and the one that’s best for you will depend on your circumstances. Here are some of the most common options you can choose from:

Conventional loans

• Description: Also known as a "conforming loan". Must meet the requirements set by Fannie Mae.
• Qualifications: Credit score of at least 620, DTI below 45%, minimum 3% down payment.
• Best for: Borrowers with good or better credit.

FHA loans

• Description: Backed by the Federal Housing Administration. Comes with low interest rates and flexible credit requirements.
• Qualifications: Minimum credit score of 580 with a 3.5% down payment, minimum credit score of 500 with a 10% down payment, mortgage insurance is required.
• Best for: Low-income borrowers with poor credit.

VA loans

• Description: Backed by the Department of Veterans Affairs. No down payment requirements. Flexible credit requirements.
• Qualifications: Only available to veterans, active duty service members, and eligible spouses. Must provide a Certificate of Eligibility to verify your service history and duty status.
• Best for: Veterans, active duty service members, and eligible family members.

USDA loans

• Description: Backed by the U.S. Department of Agriculture. Available for low-income borrowers moving to eligible rural areas.
• Qualifications: Income can’t exceed 115% of median household income, the home must be used as your primary residence, the home must be in an eligible rural area.
• Best for: Low-income borrowers in rural areas.