If you’re a first-time home buyer in Tennessee, you might be qualified for valuable assistance from your state, county, or city. That could include home buyer education, special mortgage programs, and even down payment assistance.
Ready to take your first step toward becoming a homeowner? Here’s what to do.
Verify your home buying eligibility in Tennessee. Start here
In this article (Skip to…)
Tennessee home buyer overview
The median sales price in Tennessee was $394,100 in May 2024. That rose 5.7% year-over-year, according to Redfin. With rising home prices, many first-time buyers are finding it increasingly difficult to enter the market as they try to save for a down payment.
But there is still hope. Many Tennessee first-time home buyers receive assistance from the state government and non-profit organizations through various programs and grants. These resources can help with money, education, and counseling, making buying a home easier and less expensive.
Verify your home buying eligibility in Tennessee. Start here
Tennessee home buyer stats
Average Home Sale Price in TN1
$394,100
Minimum Down Payment in TN (3%)
$11,823
20% Down Payment in TN
$78,820
Average Credit Score in TN2
702
Maximum TN Home Buyer Grant3
6% of sale price statewide (THDA repayable loan)
Down payment amounts are based on the state’s most recently available average home sale price. “Minimum” down payment assumes 3% down on a conventional mortgage with a minimum credit score of 620.
If you’re eligible for a VA loan (backed by the Department of Veterans Affairs) or a USDA loan (backed by the U.S. Department of Agriculture), you may not need any down payment at all.
First-time home buyer loans in Tennessee
If you’re a first-time home buyer in Tennessee with a 20% down payment, you can get a conventional loan with a low interest rate and no private mortgage insurance (PMI).
Find the best first-time home buyer loan for you. Start here
Of course, few first-time buyers have saved up enough money for a 20% down payment. But the good news is that you don’t need that much. Not by a long shot. Borrowers can often get into a new home with as little as 3% or even 0% down using one of these low-down-payment mortgage programs:
Conventional 97: From Freddie Mac or Fannie Mae. 3% down payment and 620 minimum FICO score. You can usually stop paying mortgage insurance after a few years once you reach 20% home equity
FHA loan: Backed by the Federal Housing Administration. 3.5% down and a 580 minimum credit score. But you’re on the hook for mortgage insurance premiums (MIP) until you refinance to a different loan type, move, or pay off your mortgage
VA loan: Only for veterans and active-duty service members. Zero down payment is required. Minimum credit score varies by lender but often 620. No ongoing mortgage insurance premiums after closing. These are arguably the best mortgages available, so apply if you’re eligible
USDA loan: For those on low–to–moderate incomes buying in designated rural areas. Zero down payment required. Credit score requirements vary by lender but often 640. Low mortgage insurance rates
Tennessee Housing Development Agency loans: May include access to competitive interest rates and down payment assistance. More information below
Note that government loan programs (including the FHA, VA, and USDA home loans) require you to buy a primary residence. That means you can’t use these loans for a vacation home or investment property.
Most loan programs even let you use gifted money or down payment assistance (DPA) to cover the down payment and closing costs. So if you’re eligible, you could potentially get into your new house with minimal cash out of pocket.
If you’re not sure which program to choose for your first mortgage loan, your lender or real estate agent can help you find the right match based on your finances and home-buying goals.
Tennessee first-time home buyer programs
First-time homebuyers in Tennessee can receive a variety of support from the Tennessee Housing Development Agency (THDA). That includes home buyer education, a range of mortgage loans, and down payment assistance.
Verify your home buying eligibility in Tennessee. Start here
THDA Great Choice Home Loan program
Tennessee’s Great Choice Home Loan program offers home buyers a 30-year fixed-rate loan option, mostly based on FHA or USDA loans.
The Great Choice home loan program is for people with low or moderate incomes who want to buy homes that are priced reasonably. To qualify, you’ll need to:
Pick your lender from a THDA-approved list
Have a credit score of 640 or higher
Undergo a home buyer education course ($99)
Meet household income and purchase price limits, which vary by county
THDA Homeownership for the Brave program
Homeownership for the Brave is a specialty loan program that can be used with a VA loan and requires zero down payment. Of course, these are only for veterans, qualifying reservists, active-duty service members, or their surviving spouses.
If you’re interested in one of these loan types, your next step is to download the THDA’s Handbook for Homebuyers.
Next, contact an approved lender from the THDA list (linked above). Tell the agent that you’re interested in a Great Choice home loan, and they should quickly establish whether or not you’re a qualified buyer. If you are, your lender will walk you through the entire process.
Tennessee first-time home buyer grants
There are several down payment assistance programs available to first-time home buyers in Tennessee. It’s worth noting that eligibility requirements and program availability can vary by location and may change over time.
It’s recommended to contact a local housing counseling agency or a lender to learn more about the programs that are available in your area.
Let us help find the right mortgage for you. Start here
THDA Great Choice Plus
THDA offers a down payment assistance program called Great Choice Plus. This second mortgage comes in two varieties: a deferred loan or an amortizing loan. These Great Choice Plus DPAs must be used with a Great Choice home loan.
Deferred DPA option: Offers loan amounts of up to $6,000 toward your down payment and/or closing costs. This loan requires no monthly payments and charges 0% interest. At the end of 30 years, your loan is forgiven in full. However, if you sell your home or refinance your mortgage before the 30 years are up, you’ll have to repay the whole amount
Amortizing DPA option: With this DPA loan, you can borrow up to 6% of the sales price. But you have to pay down the loan each month over 15 years. And you’ll pay the same interest rate that your first mortgage charges
The DPA you choose will likely depend on how much you need to borrow to cover your down payment and closing costs. It may also depend on how long you plan to remain in your next home.
Or you may choose neither. Before you decide, check out other down payment assistance programs that might cover your city or county. Pick the one that meets your needs best.
Other Tennessee first-time home buyer assistance programs
If you’re looking for a home in certain areas of Tennessee, consider other first-time homebuyer assistance programs in addition to one of the THDA programs.
For qualified buyers in Chattanooga, for example, the Chattanooga Neighborhood Enterprise provides up to $15,000 in down payment assistance. It is a second loan with an interest rate that is half a percentage point lower than your first mortgage.
Your real estate agent or Realtor can help you identify down payment and closing cost assistance programs in your area. We’ve also provided useful links to Tennessee home buying assistance below.
Buying a home in Tennessee’s major cities
Home prices in Tennessee’s biggest cities vary quite a bit. On average, market conditions in Memphis are slightly more friendly to first-time home buyers than those in Nashville and Knoxville.
Verify your home buying eligibility in Tennessee. Start here
Nashville first-time home buyers
The median list price of homes in Nashville was $589,000 in May 2024. That stayed flat year-over-year, according to Realtor.com.
If you want to buy a home at that median price, your down payment options might fall between:
$17,670 for 3% down payment
$117,800 for 20% down payment
The Metropolitan Development and Housing Agency in Nashville seems to help with down payments, but its website doesn’t say much about it. So contact the agency for more information.
Affordable Housing Resources (AHR) helps people in Nashville with their down payments by giving them up to $15,000. That’s part of the NeighborhoodLift nationwide program, and there are caps on the household income allowed. However, it says, “Income limits are higher for military service members, veterans, law enforcement officers, pre-K–12 teachers, firefighters, and emergency medical technicians.”
Unfortunately, it doesn’t specify whether the funds take the form of a second mortgage loan or grant. But you can call (615) 251-0025 to find out.
Memphis first-time home buyers
The median list price of homes in Memphis was $230,000 in May 2024. That jumped 21.1% year-over-year, according to Realtor.com.
If you want to buy a home at that median sales price, your down payment options might fall between:
$6,900 for 3% down payment
$46,000 for 20% down payment
The City of Memphis Division of Housing and Community Development (HCD) can provide down payment assistance of up to $10,000 to eligible borrowers. There are various conditions, including income limits and home price caps. There are no income caps for teachers or those working in the police or fire departments.
Unfortunately, the HCD doesn’t reveal whether the assistance takes the form of a grant or loan. So contact the department for clarification at [email protected] or call (901) 636-7474.
Let us help find the right mortgage for your first home in Memphis. Start here
Knoxville first-time home buyers
The median list price of homes in Knoxville was $439,900 in May 2024. That rose 3.5% year-over-year, according to Realtor.com.
If you want to buy a home at that median price, your down payment options might fall between:
$13,197 for 3% down payment
$87,980 for 20% down payment
The City of Knoxville does offer a down payment assistance program. However, at the time this was written, the City of Knoxville’s website said, “APPLICATIONS ARE CLOSED FOR THIS PROGRAM,” except for those wishing to purchase a home that’s developed by Home Source East Tennessee, Neighborhood Housing Inc., and East Tennessee Housing Development Corporation.
That may have changed by the time you read this, so it’s worth checking whether the program is up and running when you want to buy. If you wish to know more, call (865) 215-2865.
Where to find home buying help in Tennessee
All the organizations we’ve listed above should provide free advice to any first–time home buyer in the state of Tennessee or within their areas.
Verify your home buying eligibility in Tennessee. Start here
In addition to our selection, the U.S. Department of Housing and Urban Development (HUD) provides a few lists for statewide, regional, and local resources.
Statewide first-time home buyer resources in Tennessee
You can also find a list of resources by county and city on HUD’s website for Tennessee first-time home buyers, including:
What are today’s mortgage rates in Tennessee?
You can see today’s live mortgage rates in Tennessee here. Experiment with a mortgage affordability calculator to see how a down payment, interest rates, homeowners insurance, and property taxes will affect your monthly mortgage payment.
When you’re ready to start the home buying process, get personalized rate quotes from at least three mortgage lenders. Don’t just look at advertised rates online. Apply for preapproval and compare the interest rates and fees. That’s the only way to get the best deal possible on your new home loan.
Time to make a move? Let us find the right mortgage for you
1Source: Redfin Tennessee Housing Market report
2Source: Experian.com study of 2022 and 2021 data
3Based on a review of the state’s available DPA grants at the time this was written
The lock-in effect that has kept U.S. housing market activity subdued probably isn’t going away this year or next year or even the year after that.
It could hang over prospective buyers and sellers of existing homes for six to eight years before finally going away, Bank of America warned in a note on Monday, locking down the market into the next decade.
“The wide gap between current mortgage rates and effective mortgage rates means most homeowners are unwilling to move unless forced,” analysts said. “Moreover we do not expect current mortgage rates to fall much even if the Fed cuts as we anticipate.”
When borrowing costs were lower during the depths of the pandemic as the Federal Reserve slashed rates to near zero, homeowners rushed to refinance, leaving U.S. households with the lowest effective mortgage rate ever on records going back to 1977, according to BofA. It has ticked up about half a percentage point from its trough, but the effective rate was still at a low 3.8% in the first quarter.
As the Fed began hiking rates in 2022 to fight inflation, current mortgage rates went higher as well. Now there’s a big gap in rates.
Earlier this month, a Realtor.com report said more than half of outstanding mortgages have an effective rate of 4% or lower, and more than three-quarters have a rate of 5% or lower. Meanwhile, the current 30-year fixed rate is still hovering around 7%.
With homeowners unwilling to give up their low effective rates, the supply of existing homes has been tight and this year’s spring selling season has been muted.
Sales of existing homes hit a seasonally adjusted annual rate of 4.14 million in April of this year, barely budging in almost 18 months, BofA noted.
The bank sees that pace staying relatively flat in the coming years, projecting sales of 4.1 million for all of 2024, 4 million in 2025, and 4.2 million in 2026.
“The US housing market is stuck, and we are not convinced it will become unstuck anytime soon,” analysts wrote. “After a surge in housing activity during the pandemic, it has since retreated and stabilized.”
With supply still constrained and demand still elevated from the pandemic-induced shock, BofA expects home prices to jump 4.5% in 2024 and 5% in 2025, before finally cooling off with a 0.5% uptick in 2026. But prices could surge another 5% in 2026 if pandemic-related factors persist, analysts warned.
And don’t expect much help from newly constructed homes. The bank sees housing starts averaging a stable 1.4 million units in 2024, 2025, and 2026, with sales of new homes averaging 650,000 those years.
But others in the real estate sector think even a modest decline in mortgage rates could unlock a burst of housing market activity.
Earlier this month, Compass cofounder and CEO Robert Reffkin told CNBC that he would “feel good” about a 6.5% rate, “but the magic number is 5.9999.”
“That’d be marketing magic, and would tell the world that mortgage rates are at a level where they should go and grab a property,” he said.
Subscribe to the CEO Daily newsletter to get global CEO perspectives on the biggest stories in business. Sign up for free.
Last night’s presidential debate disappointed some trade groups by only briefly touching on how the two contenders will address housing affordability, even though other indicators suggest there could be stark differences in their approaches.
Upon being asked about the strain of rising home prices, President Biden said actions he’s taking in line with that aim include his efforts to lower broader inflation, something former President Trump also said he’d tackle.
In addition to fighting inflation, Biden said he plans to increase housing supply by “making sure we build 2 million new units” and capping rents.
The candidates also faced a question about the still-wide homeownership divide between Black voters and white households, with both candidates calling the concern a product of inflation and Biden saying he’ll continue taking steps to narrow the gap.
“For example, I provided the idea that any Black family first-time homebuyer should get a $10,000 tax credit,” Biden said, also pointing to broad efforts he’s made to prevent discrimination. President Trump, in contrast, rolled back fair lending rules during his term.
Although Realtor.com reported that the scant mention of housing wasn’t entirely surprising as it was in line with past debates between the two candidates, the omission was out of line with voter interest.
A recent poll from online real estate brokerage Redfin found that 53.2% of households said their election decision will be influenced by housing affordability. The candidates did face some questions about it, but only President Biden addressed the topic directly.
Also, a national survey from the University of Michigan and the Financial Times found that Americans’ financial ability to afford a home ranked as a top concern by a nearly equal 70% share of Democrats, Republicans and independent voters alike.
In light of that, Ralph McLaughlin, a Realtor.com economist, said he had hoped for, “more discussion about your house, and less about the White House.”
Similarly, Carl Harris, chairman of the National Association of Home Builders, issued a comment following the debate stressing a need for the presidential candidates to address the housing supply shortage and implement solutions.
“The housing affordability crisis is a top national concern and Americans will take notice why the presidential candidates said very little on how to make homeownership and renting more affordable,” Harris said in a press release.
Builders are looking for efforts that would increase inventory, Harris said.
“With a nationwide shortage of roughly 1.5 million housing units, the only way to bring down rising housing costs is to put in place policies that will allow builders to increase the housing supply,” he added.
Harris also suggested some other strategies the presidential candidates should work with lawmakers on to alleviate stresses on housing construction and affordability challenges for consumers.
“The administration and Congress must address excessive regulations, support trades education to alleviate a severe labor shortage in the construction industry that is delaying home building projects, and oppose restrictive, mandatory building codes that significantly raise housing costs and provide little energy savings to consumers,” he said, referring to some items in a set of recommendations the NAHB has.
If you rent a house when you would rather own, pin some of the blame on corporate landlords.
The 10 biggest institutional investors owned more than 430,000 single-family rental homes at the end of 2023, and they continue to acquire houses to rent out to middle-class families. Corporate landlords seek to dominate the neighborhoods they target, simultaneously reducing the inventory of houses to buy while expanding the stock of houses to rent.
Members of Congress have introduced bills to force the largest institutional investors to dramatically cut their holdings.
Renting costs less than buying
The United States suffers from a housing shortage of between 1.5 million and 5.5 million units, depending on whom you ask. Institutional investors benefit from the shortage because it pushes prices higher, making homeownership unaffordable for many. The median home resale price rose to a record $419,300 in May, according to the National Association of Realtors. Mortgage rates have remained above 6.5% since May 2023.
Consequently, it costs more to buy a starter home than to rent in the 50 largest metro areas, according to a Realtor.com report in March. According to Zillow, the median rent for a three-bedroom house was $2,200 in June. That’s $32 less than the principal-and-interest payment on a median-price house at the average mortgage rate in May — after making a 20% down payment. But who has $83,860 for a 20% down payment on a $419,300 house? The combination of high prices and interest rates forces many would-be homeowners to rent.
‘Significant market power’
Renters occupy about 15.9 million single-family homes, according to the Census Bureau. Corporate landlords own about 3% of them. That doesn’t seem like much, but corporate-owned rental houses are concentrated in a few metro areas, mostly in Florida, Georgia, the Carolinas, Texas, Arizona and California. In metro Atlanta, just three companies owned 19,000 houses at the beginning of 2022, for an 11% market share, according to research by Georgia State University geographer Taylor Shelton.
“These companies own tens of thousands of properties in a relatively select set of neighborhoods, which allows them to exercise really significant market power over tenants and renters because they have such a large concentration of holdings in those neighborhoods,” Shelton said in a news release.
Shelton says the corporate landlords’ market share has increased since then. “The reality is that the corporate stranglehold on the single family rental market in places like Atlanta has only gotten worse,” he said in an email.
Raising rents, charging fees
Invitation Homes owned 12,726 rental houses in metro Atlanta at the end of 2023. The company exercised its market power by raising the average rent there 7.1% last year, according to the company’s annual reports, while the area’s median home price went up 1.3%, according to the National Association of Realtors. Invitation also stacks up to $145 in mandatory monthly fees on top of rent: up to $40 for smart home technology, $9.95 for quarterly air filter delivery, $9.95 to manage utility billing and up to $85 for internet.
Corporate landlords raise rent and charge ancillary fees because they can. “These institutions have outsized power in our housing market, and that influence is growing,” said U.S. Sen. Jeff Merkley, D-Oregon, in an email. “By 2030, Wall Street could control 40 percent of U.S. single-family rental homes.”
How corporate landlords get so many houses
Big corporations have two main methods of accumulating rental houses: buying homes when the owners list them for sale and build-to-rent. In recent years, build-to-rent has dominated.
In the build-to-rent model, a company constructs houses that are intended for the rental market from the time the company buys the land. According to an Urban Institute analysis, construction was started on 120,000 build-to-rent houses in 2022 — 12% of all single-family starts.
The other way these companies collect houses is by buying them on the resale market. When they do, corporations have the resources to outcompete folks who browse for houses online.
Progress Residential is the largest corporate landlord, with 85,000 houses. It bought most of them on the resale market, competing with ordinary people. But Progress has an edge over people, a company executive explained in a 2021 episode of the Leading Voice in Real Estate podcast.
“We have an incredibly effective system for acquiring homes one at a time,” Progress’s then-CEO, Chaz Mueller, said. Every 15 minutes, the company got an update of newly listed homes in its markets. When an algorithm identified a house that met its criteria, the company’s acquisition team made an offer “within a couple of hours of the home going on the market. So we’re able to analyze it very quickly, make an offer. Our offers are all cash, very flexible closing, basically whenever the seller wants to move out,” Mueller said.
A bill to make them sell
Merkley, the Oregon senator, has introduced a bill that would force corporate landlords to sell their houses. The End Hedge Fund Control of American Homes Act “is intended to give all families a fair chance to buy a decent home in a decent community at a price they can afford, because houses should be homes for families, not a profit center for Wall Street,” Merkley said in an email.
His bill would make corporate landlords sell at least 10% of their inventories of single-family rental homes every year for 10 years or face steep tax penalties. A similar bill was introduced into the House, sponsored by U.S. Rep. Adam Smith, D-Washington.
Are corporate landlords giving people what they want?
Corporate landlords point out that they build houses in a country that needs millions more dwellings. “We continue to do our part in solving the housing shortage by providing new premium housing options in desirable family-friendly locations across the country,” said David Singelyn, CEO of AMH, the third-largest corporate landlord with about 60,000 houses, in a recent earnings call.
Sean Dobson, CEO of The Amherst Group (fourth-biggest, 50,000 houses), made a similar point when he was interviewed for Barry Ritholtz’s Masters in Business podcast in March. He described a family that outgrows an apartment, but can’t afford to buy a house. Then the family rents from Amherst: “These are homes that [the] resident would have a very difficult time getting into without us,” he said.
MINNEAPOLIS — Last year, after Deb Jerikovsky’s husband died, she decided to swap the lake home where they planned to spend retirement for a house in the metro that’s closer to family.
She put that plan on hold, however, once she realized 7% mortgage rates would force her to dip too deeply into her savings. Instead, she moved in with her daughter, hoping she’d eventually score a lower rate.
Advertisement
She didn’t have to wait long.
Advertisement
$121,398: That’s how much you need to make to afford a mortgage in Dallas
D-FW Real Estate News
Get the latest real estate news you need to know.
Mortgage rates were still hovering near 7% last October when she ran across a listing for a townhouse in Coon Rapids, Minnesota, that touted a KitchenAid fridge, electronic blinds and an unexpected extravagance: a low-interest assumable mortgage.
“It was like winning the lottery,” said Jerikovsky, who assumed the seller’s 2.25% mortgage rate.
Advertisement
The deal saved her about $700 a month compared with today’s rates and gave her enough room in her budget to buy a new car and spend part of the winter with her aunt in Florida. Her $349,900 townhouse is one of hundreds of listings in the Twin Cities with an assumable mortgage eligible sellers can transfer to qualifying buyers, teleporting them back to a time of record-low rates.
Though they now account for only a fraction of all house listings, these government-backed mortgages — courtesy of the Federal Housing Administration (FHA), Veteran Affairs (VA) and U.S. Department of Agriculture (USDA) — are an overlooked home-buying hack saving a growing number of buyers hundreds of dollars a month and tens of thousands of dollars through the life of their mortgages.
“Most agents aren’t even aware of what it entails and what to look for,” said Tyler Miller, a Minnesota broker who has been involved with several sales involving assumable mortgages with astoundingly low rates.
Advertisement
Miller recently listed a four-bedroom house in Blaine with an assumable 2.25% FHA mortgage with a monthly payment that’s about $1,700 less than it would be at the going rate. To tout the listing, he posted a TikTok video promoting the benefits.
Advertisement
“I had some people tell me I was lying,” Miller said. “I said, ‘No, this is real.’”
Assumable mortgages have been lurking in the shadows of unusually low rates in recent history. Such mortgages were last popular in the 1980s when rates hit a record 18.1%.
At the end of 2020 and into early January 2021, rates fell to record lows, hovering around 3% for much of 2021 and causing home sales and prices to soar. That buying binge locked in thousands of mortgages at rates that likely won’t be that low again for decades. An estimated 80% of all VA mortgages, like the one Jerikovsky assumed, now have a rate that’s less than 4%, and many of those rate-holders are now ready to sell.
Advertisement
Today, the average 30-year fixed-rate mortgage is about 7%. Though that’s still below historical averages, there’s a generation of buyers yearning for a time of low rates that’s unlikely to re-emerge anytime soon.
An estimated one-third of all mortgages in the U.S. are assumable now. Because many owners will hold onto those rates as long as possible, assumable mortgage listings represent only a fraction of homes currently for sale, making them one of the best-kept secrets for homebuyers these days.
While some agents will include an assumable mortgage in the listing details, many homeowners don’t even know they have one — the details are buried in the fine print of their contract, which many buyers don’t carefully read. In Minnesota, just shy of 5% of the more than 30,000 houses listed on Realtor.com had assumable mortgages. The website only started including a search feature for assumable mortgages in February.
Ryan Carrillo and Louis Ortiz started their Assumable.io website, which is dedicated to assumable mortgages, after Carrillo discovered the 2.75% FHA mortgage on his own house was assumable.
Advertisement
The site lets you search for listings city by city, including detailed mortgage data such as the assumable rate and payment compared with the payment at current rates. All of the more than 30,000 nationwide listings on the site have an assumable mortgage, including other key details such as the required down payment and the interest savings through the remaining mortgage.
“It’s a huge opportunity,” Carrillo said, nothing that traffic to the site has doubled every month since its launch.
A recent listing for a nearly new townhouse in Maple Grove initially priced at $485,000 came with an assumable mortgage that’s half the current rate, saving a would-be buyer about $1,000 a month. Through the life of the loan, that lower rate would save nearly $400,000 in interest payments.
Roam, which doesn’t yet post listings in the Twin Cities, is another new website focused solely on assumable mortgages. It charges buyers 1% of the purchase price to help navigate the process. On average, the company claims, buyers who use the site save $15,000 in mortgage payments annually.
Advertisement
“It’s not a panacea and won’t work for every transaction and every buyer,” Ortiz said. “But it provides buyers the opportunity to afford more house if they can make the equity gap work.”
That equity gap is often the biggest hurdle. Because the buyer is essentially taking on the existing mortgage rather than receiving a new one, the buyer has to pay the seller the difference between the original mortgage balance and the current asking price.
Though it’s only been a couple years since rates spiked, that equity gap can be significant given how house prices have steadily risen. To eliminate that barrier, Ortiz and Carrillo said they’re now offering lenders willing to do a second mortgage access to their site.
Chris Birk — vice president of Veterans United Home Loans, which has a national network of agents who specialize in working with military buyers — said there’s been a 600% increase in the number of VA mortgage assumptions from 2022 to 2023.
Advertisement
“We’re seeing marked increase interest in these,” he said. “But it’s a foreign concept for so many buyers but also sellers.”
He said while any lender or servicer should be able to complete the transaction, it helps to work with professionals who are familiar with the process.
Brady Holland, the agent who helped Jerikovsky buy her townhouse, said assuming a mortgage can be a bit more complex because both the buyer and seller have to provide documentation. That’s especially true for the seller, who is essentially “selling” the mortgage to the buyer.
“It was a little tricky,” he said. “I had to call [the processor] every other day to check on things. … It takes a team to make it happen.”
Advertisement
Many VA mortgage holders are reluctant to let another buyer assume their mortgage because once they do, they forfeit the right to use the benefit to buy another one. Unlike FHA mortgages, VA mortgages are considered a government benefit with perks that include the ability to forgo private mortgage insurance and no, or a low down payment and competitive low rates.
A VA mortgage holder is entitled to transfer those benefits to a qualifying nonveteran, as long as the seller doesn’t plan to buy a home with another VA loan.
In the case of the house that Jerikovsky bought, the seller was a widow who moved to an apartment, enabling her to waive her right to additional VA mortgage benefits because she doesn’t plan to buy again.
Though a mortgage assumption can take longer than a new, traditional mortgage, that wasn’t the case for Jerikovsky’s purchase, which closed less than two months after she first saw the house. For her, the most challenging part of the process, she said, was filling out online forms and applications. But her tech-savvy daughter helped with that.
Advertisement
“I didn’t know if I would be living with my daughter for six months or a couple years until rates went down,” she said. “That (assumable) rate made all the difference in the world.”
– Jim Buchta for the Star Tribune
Related Stories
Ranch belonging to longtime Dallas real estate exec hits the market
Bosque Mountain Ranch, a 288-acre property 1.5 hours from Dallas and Fort Worth, has hit the market. Take a photo tour of the property.
New apartments for ranch where ‘Dallas’ TV show was once filmed are coming soon
Apartment developer Trammell Crow Residential will soon finish its first units and could begin work on a third phase of construction in its rental community at Frisco’s historic Brinkmann Ranch.
Legacy is the driving force behind the Prosper Arts District
Learn more about the vision and visionary, Krishna Nimmagadda, behind the Prosper Arts District mixed-use development. Architecture firm Gensler is also a partner on the 35-acre project in Collin County.
Photo illustration by Fortune; original photo by Getty Images
A lot of would-be sellers aren’t selling their homes, and it’s because of the lock-in effect.
Throughout the pandemic and several years before, mortgage rates were really low. But the Federal Reserve raised interest rates to tame inflation, sending mortgage rates up along with them. So everyone who locked in a low mortgage rate before they soared are sitting on a gold mine. Their fixed debt is lower than what anyone could get in our current economic environment. Who wants to give that up?
Nobody, unless they have to. And some people do, because there are sellers out there who want to off-load their homes, which is why there were more listings this year than last year. Still, this year’s spring selling season was muted, to say the least. And it turns out that about 87% of outstanding mortgage debt has a rate below 6%, according to Realtor.com’s analysis of data from the Federal Housing Finance Agency, as of the fourth quarter of last year. The mortgage rate to outstanding share of mortgages ratios are as follows:
Below 3%: 22.20%
3% to 4%: 35.90%
4% to 5%: 18.90%
5% to 6%: 9.70%
Above 6%: 13.20%
“Altogether, this means that more than half of outstanding mortgages have a rate of 4% or lower, and more than three-quarters have a rate of 5% or lower,” Realtor.com said. Meanwhile, the average 30-year fixed daily mortgage rate is 7.04%, and the weekly mortgage rate is 6.95%.
“As a result, many homeowners have chosen to stay put, holding off on listing their home for sale until mortgage rates come down,” the analysis read. “Based on a recent survey, 82% of those looking to sell their home and purchase a new one feel ‘locked-in’ by high mortgage rates.”
Think about it like this: If you were to buy a $600,000 home, after putting 20% down, with a 3% mortgage rate, your monthly payment would be about $2,024. With the same circumstances, but a 7% mortgage rate, your monthly payment would be roughly $3,193; (neither calculation includes taxes or insurance). That’s a big difference. Not to mention home prices have skyrocketed, too; in March, national home prices hit their ninth all-time high over the past year. So it’s not necessarily true that a $600,000 home three years ago would still be valued at as much today.
Either way, there are several estimates on the lock-in effect, though they all tend to indicate the same thing: that a large share of outstanding borrowers have a below-market mortgage rate. According to Apollo Global Management chief economist Torsten Slok, 63% of outstanding mortgages have interest rates below 4% (before the pandemic, it was only 38%, he said). For its part, Capital Economics has the average rate of all outstanding mortgages pinned at about 4%.
So what will it take for people to sell? Apart from the usual reasons—marriage, divorce, kids, career changes, or death—some suggest the magic mortgage rate might be anything below 6%. As of last month, Fannie Mae predicts the average 30-year fixed mortgage rate will end the year at 7%, for one. And it seems the Fed has only penciled in a single interest-rate cut this year.
Editor’s Note: Parts of this story were auto-populated using data from Curinos, a mortgage research firm that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our methodology here.
Mortgage rates continue their modest decline this week, although 30-year fixed rates continue to hover well above 7%. According to data from Curinos analyzed by MarketWatch Guides, today’s 30-year fixed rate is down to 7.22% APR.
On Friday, a stronger-than-expected jobs report led Lawrence Yun, chief economist for the National Association of Realtors, to predict rates will continue to remain above 7% for the next month.
While high rates continue to affect the housing market, there’s a silver lining for younger and first-time homebuyers. Real estate marketplace Realtor.com released data Tuesday indicating there are more smaller and lower-priced homes on the market than this time last year, based on price-per-square-foot data. Since last May, there has been a 46.6% increase in the amount of homes in the $200,000 to $350,000 price range across the U.S.
Here are today’s average mortgage rates:
30-year fixed mortgage rate: 7.22%
15-year fixed mortgage rate: 6.47%
5/6 ARM mortgage rate: 7.09%
Jumbo mortgage rate: 7.15%
Current Mortgage Rates
Product
Rate
Last Week
Change
30-Year Fixed Rate
7.22%
7.40%
-0.18
15-Year Fixed Rate
6.47%
6.71%
-0.24
5/6 ARM
7.09%
7.07%
+0.02
7/6 ARM
7.20%
7.24%
-0.04
10/6 ARM
7.27%
7.30%
-0.03
30-Year Fixed Rate Jumbo
7.15%
7.25%
-0.10
30-Year Fixed Rate FHA
6.89%
7.02%
-0.13
30-Year Fixed Rate VA
6.91%
7.04%
-0.13
Disclaimer: The rates above are based on data from Curinos, LLC. All rate data is accurate as of Friday, June 14, 2024. Actual rates may vary.
>> View historical mortgage rate trends
Mortgage Rates for Home Purchase
30-year fixed-rate mortgages are down, -0.18
The average 30-year fixed-mortgage rate is 7.22%. Since the same time last week, the rate is down, changing -0.18 percentage points.
At the current average rate, you’ll pay $680.14 per month in principal and interest for every $100,000 you borrow. You’re paying less compared to last week when the average rate was 7.40%.
15-year fixed-rate mortgages are down, -0.24
The average rate you’ll pay for a 15-year fixed-mortgage is 6.47%, a decrease of-0.24 percentage points compared to last week.
Monthly payments on a 15-year fixed-mortgage at a rate of 6.47% will cost approximately $869.46 per $100,000 borrowed. With the rate of 6.71% last week, you would’ve paid $882.69 per month.
5/6 adjustable-rate mortgages are up, +0.02
The average rate on a 5/6 adjustable rate mortgage is 7.09%, an increase of+0.02 percentage points over the last seven days.
Adjustable-rate mortgages, commonly referred to as ARMs, are mortgages with a fixed interest rate for a set period of time followed by a rate that adjusts on a regular basis. With a 5/6 ARM, the rate is fixed for the first 5 years and then adjusts every six months over the next 25 years.
Monthly payments on a 5/6 ARM at a rate of 7.09% will cost approximately $671.36 per $100,000 borrowed over the first 5 years of the loan.
Jumbo loan interest rates are down, -0.10
The average jumbo mortgage rate today is 7.15%, a decrease of-0.10 percentage points over the past week.
Jumbo loans are mortgages that exceed loan limits set by the Federal Housing Finance Agency (FHFA) and funding criteria of Freddie Mac and Fannie Mae. This generally means that the amount of money borrowed is higher than $726,200.
Product
Monthly P&I per $100,000
Last Week
Change
30-Year Fixed Rate
$680.14
$692.38
-$12.24
15-Year Fixed Rate
$869.46
$882.69
-$13.23
5/6 ARM
$671.36
$670.01
+$1.35
7/6 ARM
$678.79
$681.50
-$2.71
10/6 ARM
$683.53
$685.57
-$2.04
30-Year Fixed Rate Jumbo
$675.41
$682.18
-$6.77
30-Year Fixed Rate FHA
$657.93
$666.65
-$8.72
30-Year Fixed Rate VA
$659.27
$667.99
-$8.72
Note: Monthly payments on adjustable-rate mortgages are shown for the first five, seven and 10 years of the loan, respectively.
Factors That Affect Your Mortgage Rate
Mortgage rates change frequently based on the economic environment. Inflation, the federal funds rate, housing market conditions and other factors all play into how rates move from week-to-week and month-to-month.
But outside of macroeconomic trends, several other factors specific to the borrower will affect the mortgage interest rate. They include:
Financial situation: Mortgage lenders use past financial decisions of borrowers as a way to evaluate the risk of loaning money.
Loan amount and structure: The amount of money that bank or mortgage lender loans and its structure (including both the term and whether its a fixed-rate or adjustable-rate).
Location: Mortgage rates vary by where you are buying a home. Areas with more lenders, and thus more competition, may have lower rates. Foreclosure laws can also impact a lender’s risk, affecting rates.
Whether borrowers are first-time homebuyers: Oftentimes first-time homebuyer programs will offer new homeowners lower rates.
Lenders: Banks, credit unions and online lenders all may offer slightly different rates depending on their internal determination.
How To Shop for the Best Mortgage Rate
Comparison shopping for a mortgage can be overwhelming, but it’s shown to be worth the effort. Homeowners may be able to save between $600 and $1,200 annually by shopping around for the best rate, researchers found in a recent study by Freddie Mac. That’s why we put together steps on how to shop for the best mortgage rate.
1. Check credit scores and credit reports
A borrower’s credit situation will likely determine the type of mortgage they can pursue, as well as their rate. Conventional loans are typically only offered to borrowers with a credit score of 620 or higher, while FHA loans may be the best option for borrowers with a FICO score between 500 and 619. Additionally, individuals with higher credit scores are more likely to be offered a lower mortgage interest rate.
Mortgage lenders often review scores from the three major credit bureaus: Equifax, Experian and TransUnion. By viewing your scores ahead of lenders considering you for a loan, you can check for errors and even work to improve your score by paying down balances and limiting new credit cards and loans.
2. Know the options
There are four standard mortgage programs: conventional, FHA, VA and USDA. To get the best mortgage rate and increase your odds of approval, it’s important for potential borrowers to do their research and apply for the mortgage program that best fits their financial situation.
The table below describes each program, highlighting minimum credit score and down payment requirements.
Though conventional mortgages are most common, borrowers will also need to consider their repayment plan and term. Rates can be either fixed or adjustable and terms can range from 10 to 30 years, though most homeowners opt for a 15- or 30-year mortgage.
3. Compare quotes across multiple lenders
Shopping around for a mortgage goes beyond comparing rates online. We recommend reaching out to lenders directly to see the “real” rate as figures listed online may not be representative of a borrower’s particular situation. While most experts recommend getting quotes from three to five lenders, there is no limit on the number of mortgage companies you can apply with. In many cases, lenders will allow borrowers to prequalify for a mortgage and receive a tentative loan offer with no impact to their credit score.
After gathering your loan documents – including proof of income, assets and credit – borrowers may also apply for pre-approval. Pre-approval will let them know where they stand with lenders and may also improve negotiating power with home sellers.
4. Review loan estimates
To fully understand which lender is offering the cheapest loan overall, take a look at the loan estimate provided by each lender. A loan estimate will list not only the mortgage rate, but also a borrower’s annual percentage rate (APR), which includes the interest rate and other lender fees such as closing costs and discount points.
By comparing loan estimates across lenders, borrowers can see the full breakdown of their possible costs. One lender may offer lower interest rates, but higher fees and vice versa. Looking at the loan’s APR can give you a good apples-to-apples comparison between lenders that takes into account both rates and fees.
5. Consider negotiating with lenders on rates
Mortgage lenders want to do business. This means that borrowers may use competing offers as leverage to adjust fees and interest rates. Many lenders may not lower their offered rate by much, but even a few basis points may save borrowers more than they might think in the long run. For instance, the difference between 6.8% and 7.0% on a 30-year, fixed-rate $100,000 mortgage is roughly $5,000 over the life of the loan.
Expert Forecasts for Mortgage Rates
Mortgage rates have cooled significantly over the past several months. After the 30-year fixed-rate mortgage hit 8% last October, it ended 2023 closer to 7%. In fact, the average for Q4 2023 was 7.3%.
Analysts with Fannie Mae and the Mortgage Bankers Association (MBA) both project that rates will fall going into 2024 and throughout next year.
Fannie Mae economists expect rates to drop more quickly, falling below 6% by Q4 2024. Meanwhile, the MBA’s forecast for Q4 2024 is 6.1% and 5.9% for Q1 2025.
More Mortgage Resources
Methodology
Every weekday, MarketWatch Guides provides readers with the latest rates on 11 different types of mortgages. Data for these daily averages comes from Curinos, LLC, a leading provider of mortgage research that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our comprehensive methodology here. Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
(Bloomberg) — Mortgage rates in the US fell for a second straight week, giving home shoppers a bit of a break as the Federal Reserve monitors inflation data.
Most Read from Bloomberg
The average for a 30-year, fixed loan was 6.95%, down from 6.99% last week, Freddie Mac said in a statement Thursday.
A key measure of consumer prices cooled in May to the slowest pace in more than three years, data released this week showed. Yet housing inflation remains high, putting pressure on renters and buyers and casting doubt over the prospect of imminent Fed rate cuts.
“From a higher-level perspective, as the housing market goes, so does the country,” said Ralph McLaughlin, senior economist at Realtor.com. “Since shelter makes up a large portion of our primary measures of inflation, a slowdown in the growth of both prices and rents may be what the broader economy needs to get the Fed to cut rates.”
The central bank left its key interest rate unchanged Wednesday and scaled back its forecast for this year to just one reduction instead of three. Fed Chair Jerome Powell acknowledged “modest” improvement toward the goal of 2% inflation but reiterated that policymakers would seek more sustainable progress before cutting rates.
Powell was referring to the current situation in which homeowners holding historically low rate mortgages aren’t feeling incentivized to sell their homes, reducing the number of properties available in the market.
A Federal Housing Finance Agency research paper published in March 2024 shows that nearly all 50 million active mortgages have fixed rates, and most have interest rates far below prevailing market rates, creating a disincentive to sell.
The paper suggests that a homeowner with a 4% mortgage rate — closer to the pandemic-era levels of 2% to 4% — is more than 50% less likely to sell with mortgage rates at 7% than if they were at 4%.
Also on Wednesday, as expected, the Fed maintained its short-term policy interest rate between 5.25% and 5.5%. It also released estimates showing that most of its officials forecast only one rate cut this year, compared to a majority who were planning for a total of three cuts in March. That’s despite the lowest annual inflation report since early 2021.
“The Fed is wrangling with tenacious inflation. The consumer price index for May was lower than expected, but the Fed won’t claim success until inflation has improved several months in a row,” Holden Lewis, a home and mortgage expert at NerdWallet, said in a statement.
According to Lewis, mortgage rates dropped slightly last week, but the decline doesn’t imply a long-term trend. In his opinion, “mortgage rates are likely to remain stubbornly above 6.5% for the rest of 2024.”
Fed officials not only reduced the number of projected rate cuts this year from three to one but also increased their year-end rate estimate. The median federal funds rate at the end of 2024 is expected to be 5.1%, compared to 4.6% in March. For 2025, projections went from 3.9% in March to 4.1% in June.
It means that “once it starts, this cutting cycle is likely to be shorter than past cycles,” according to Mortgage Bankers Association (MBA) chief economist Mike Fratantoni.
Wednesday’s announcement, however, did not change the MBA’s forecast that mortgage rates will drop to about 6.5% by the end of 2024.
Freddie Mac’s latest index, released on Thursday, shows that 30-year fixed mortgages are averaging 6.95%. The conforming loan rate was 7.15% at HousingWire’s Mortgage Rates Center.
“Mortgage rate trends aren’t likely to bust the mortgage rate inventory lock-in effect until at least the end of the year, and possibly well into 2025, as the Fed holds fast on fighting inflation,” Realtor.com senior economist Ralph McLaughlin said in a statement.
According to McLaughlin, the 10-year yield has to drop by 150 to 200 basis points for homeowners to feel comfortable selling and buying another home.
“At current spreads, this could require 3-4 quarter-point rate cuts by the Fed,” McLaughlin said. “As of now, the market is pricing in just one cut by the end of the year and 2-3 cuts in 2025. As such, anyone hoping the lock-in effect will be busted this year may be sorely disappointed.”
Housing industry experts believe that deals are being made by sellers and buyers who face life events — such as people divorcing or retiring, moving to another state for work or forming families.
Chuckie Reddy, partner and head of growth investments at QED Investors, a fintech venture capital firm with more than $5 billion under management, said that as relief in mortgage rates is delayed, “we are starting to see some signs of inventory build, which may lead to some price reductions.”
“We’re really starting to see for the first time some data showing that buyers are a little bit exhausted and that sellers are coming to the market, setting up the scenario where we could return to market equilibrium with housing price cuts and softness in house prices,” Reddy said in a statement.
As expected by virtually all market participants, the Federal Reservemaintained its short-term policy interest rate between 5.25% and 5.5% at its June meeting that concluded Wednesday afternoon.
That’s the seventh consecutive time policymakers with the Federal Open Markets Committee (FOMC) kept the rates unchanged, reflecting mixed signals from the leading U.S. economic data. Job creation came in stronger than expected in May, but inflation slowed slightly.
According to the FOMC, “the risks to achieving its employment and inflation goals have moved toward better balance over the past year.” In recent months, there has been “modest” progress toward the 2% inflation target, but the economic outlook is “uncertain,” and the committee remains “highly attentive to inflation risks.”
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the FOMC said in a statement. “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.”
For mortgage companies, today’s Fed decision means that rates for home loans will remain at higher levels for longer. Following the release of inflation data on Wednesday morning, the 30-year fixed rate for conforming loans was at 7.18%, according to HousingWire’s Mortgage Rates Center.
All eyes are now on the Fed’s next moves. Officials no longer expect three rate cuts for 2024, as indicated in March. According to new economic projections, 11 policymakers expect no more than one rate cut this year since more evidence of a cooling economy is needed.
The data shows that eight participants estimate a target level for the federal funds rate of 4.875% at the end of 2024, compared to seven participants at 5.125% and four at 5.375%. Overall, the median for the federal funds rate is at 5.1%, compared to 4.6% in March, the new projections show.
Monetary policy watchers believe there is a 91.1% chance of rates staying unchanged in July, along with a 65.4% chance of a rate cut in September, according to the CME FedWatch Tool, which measures the likelihood of changes to rates at upcoming meetings.
Fed officials have consistently stated that economic data drives their decisions.
In May, the U.S. economy added 272,000 jobs, above the market consensus estimate of 180,000, per data released by the U.S. Bureau of Labor Statistics. But the unemployment rate was at 4%, the highest level since January 2022 and up from 3.7% one year earlier.
Meanwhile, the Consumer Price Index (CPI) cooled slightly in May, with the all-items index posting a 3.3% annual increase before seasonal adjustment, down from 3.4% in April. On a month-over-month basis, inflation remained flat, marking the first month without an increase since July 2022. In April, the index posted a month-over-month increase of 0.3%.
Fed officials are expecting higher inflation for 2024 than previously projected. PCE inflation is estimated at 2.6%, higher than 2.4% in March. Core inflation, which excludes food and energy, is estimated at 2.8%, up from 2.6% previously. Unemployment rate expectations remained unchanged at 4% from March to June.
“We need to see more good data to bolster our confidence that inflation is moving sustainably towards 2%,” Fed Chairman Jerome Powell told journalists during a conference on Wednesday afternoon. “It’s going to be not just the inflation rate readings; it’s going to be the totality of the data.”
According to Powell, reducing policy restraint too soon or too much could reverse the progress already made. Meanwhile, waiting too long would impact the U.S. economy.
But if the economy remains solid and inflation persists, Powell said the Fed is ready to “maintain the current range for the overall funds rate as long as appropriate,” adding that there’s no “commitment to a rate path.”
“It’s the full economic picture, not a singular factor, that will guide their decision,” First American deputy chief economist Odeta Kushi said in a statement.
“The FOMC will hold off on making any changes to the federal funds rate until inflation, and the factors that drive inflation, such as a more balanced labor market, make significant and sustained progress toward the Fed’s target, or there’s a significant decline in economic activity or worrisome weakness in the labor market.”
According to Kushi, the FOMC rate announcement itself is unlikely to significantly impact mortgage rates, but a more hawkish tone than markets anticipate can move them up further, or vice versa.
Realtor.com chief economist Danielle Hale said that “there are ample data points for both sides to factor into the debate” of where rates should be.
“Although recent inflation and labor market data have raised questions about whether additional increases in the Fed’s rate are necessary, I still expect the current rate to be sufficiently restrictive to bring inflation back to 2%, and updated economic projections suggest that Fed decision makers agree,” Hale said.
“For home shoppers and sellers, I expect that peak mortgage rates likely remain in the rearview, but volatility remains a risk, complicating moving decisions for home sellers, homebuyers, and renters alike,” she added.
Regarding the housing sector, Powell said that the situation is “complicated” and the best the Fed can do is “bring inflation down,” noting that the country will still have to deal with a housing shortage.
Editor’s note: This is a developing story and will be updated.