How to Get Financial Help to Build a House in Tennessee

Building a house in Tennessee can feel like an impossible dream when you start adding up the numbers: land, site work, permits, rising construction costs, plus the down payment and closing costs on a construction loan. The good news is that Tennessee has a surprisingly rich stack of state, federal, and local programs that can help you build a home with far less cash up front. If you know how to combine THDA loans, USDA rural financing, VA benefits, and city or nonprofit down payment assistance, you can turn a huge financial mountain into something you can realistically climb.

In this guide, you’ll walk through exactly how to get financial help to build a house in Tennessee in 2025, with in-text links to official and reputable sources you can click and explore. We’ll cover statewide help from the Tennessee Housing Development Agency (THDA), federal programs like USDA, FHA, and VA loans, plus local programs in Memphis, Shelby County, Nashville/Middle Tennessee, Knoxville/East Tennessee, and Chattanooga. By the end, you’ll understand how these programs fit together and how to approach lenders and builders so your Tennessee new-build doesn’t break you financially.

How Construction Loans Work When You’re Building in Tennessee

Before you start stacking assistance, it helps to understand how construction loans actually work. Unlike buying an existing house with a simple mortgage, building a home usually means using a construction-to-permanent loan.

With a construction-to-permanent (sometimes called “one-time close”) loan, the lender approves one loan that:

• Funds the lot purchase (if you don’t already own land)
• Pays the builder in draws during construction
• Then converts into a regular 30-year mortgage when the home is finished

Programs like the FHA One-Time Close loan allow you to finance the lot, construction, and final mortgage in a single loan with one closing, with a minimum 3.5% down payment if you qualify under FHA’s rules and local loan limits. You can read more on the structure of this program from the FHA-focused resource FHA.com’s page on FHA One-Time Close Construction-to-Permanent Loans Explained: The Complete Guide for First-Time Builders">Construction-to-permanent loans.

During construction, the bank releases money to your builder in stages—foundation, framing, mechanicals, finishes—and you usually pay interest only on what has actually been drawn. Once the house is complete, inspected, and given a Certificate Of Occupancy, the loan converts to a typical amortizing mortgage and you begin regular principal and interest payments. The trick is: you still need a down payment and closing costs, and that’s where Tennessee’s assistance programs can dramatically change the math.

Statewide Help: Tennessee Housing Development Agency (THDA)

The single most important statewide resource is the Tennessee Housing Development Agency. THDA runs several programs that can be used for new construction as well as existing homes, especially once your construction loan converts to a permanent mortgage.

You can start browsing options on the THDA homebuyers portal, which centralizes its main programs for buyers across Tennessee.

Great Choice Home Loan: Your Core Tennessee Mortgage

THDA’s flagship product is the Great Choice Home Loan, a 30-year fixed-rate mortgage aimed at low- to moderate-income buyers. The program is described in detail on THDA’s official Great Choice Home Loan page for first-time homebuyers.

A few key features of Great Choice:

• It’s usually paired with FHA, USDA-RD, VA, or conventional HFA loans, which means it can be used when you’re buying new construction as long as the home meets the underlying loan’s rules.
• You get a 30-year fixed rate and access to THDA’s down payment help if you qualify.
• You must meet income and purchase-price limits and have at least a 640 credit score, as outlined on THDA’s site and summarized by independent guides like Bankrate’s Tennessee first-time homebuyer assistance overview.

For someone building, the usual structure is: your Construction-to-permanent Loan is set up so that once the house is complete, the permanent mortgage phase is a THDA Great Choice loan. That’s what unlocks THDA’s powerful down payment assistance.

Great Choice Plus: Down Payment Assistance Up to 5% (Max $15,000)

The real magic happens when you add Great Choice Plus, THDA’s down payment assistance second mortgage. The official THDA down payment assistance page lays out two versions of Great Choice Plus:

1. Deferred Option

• $6,000 second mortgage
• 0% interest, no monthly payments
• Forgiven after 30 years, as long as you don’t sell, refinance, or move out earlier

1. Amortizing Option

• Up to 5% of the sales price, capped at $15,000
• Second mortgage with a 30-year term
• Interest rate matches your Great Choice first mortgage

Independent breakdowns, like Bankrate’s 2025 guide and lender summaries, confirm these numbers and emphasize that the amortizing option can significantly increase total assistance for higher-priced homes.

For a new build, this second mortgage can often cover your required down payment and most, if not all, of your closing costs on the permanent loan. For example, if your completed home’s price is $320,000 and you’re using an FHA construction-to-perm loan, your 3.5% down payment would be $11,200. A Great Choice Plus amortizing second loan could cover that and still have some room for closing costs.

Homeownership for Heroes: Lower Rates for Military & First Responders

If you’re a veteran, active-duty servicemember, member of the National Guard, or a qualifying first responder, THDA’s Homeownership for Heroes version of Great Choice is worth a serious look. This variation reduces the interest rate on your Great Choice loan (historically by about 0.5% compared to the standard rate), while still allowing you to combine it with Great Choice Plus down payment assistance. THDA’s lender partners and marketing materials highlight this as a way for eligible buyers to save money over the life of the loan while still stacking DPA.

In practice, this can pair beautifully with a VA construction loan: you use your VA one-time-close loan to build a home with no down payment, then benefit from THDA’s reduced rate and, in some cases, additional assistance with closing costs.

New Start & Other THDA-Supported Affordable Builds

For very low-income households, THDA also supports new construction through the federally funded HOME Program, which channels money into nonprofits and local governments to build or rehab affordable single-family homes across the state.

Programs like THDA’s New Start (administered via nonprofit partners such as Habitat affiliates and local housing development corporations) can offer deeply subsidized or even 0% interest loans for new construction, but they’re project-specific. You don’t usually walk into a bank and ask for “New Start”—instead, you apply through a nonprofit that uses THDA funds to build and finance affordable homes for qualifying families.

The takeaway: whether you’re a moderate-income buyer using Great Choice + Great Choice Plus, or a low-income household working with a nonprofit on a THDA-assisted build, the state is often the anchor that makes your Tennessee home build realistically affordable.

Federal Loan Programs That Work for Tennessee New Construction

On top of THDA programs, you can leverage federal loans that are especially friendly to new builds: USDA Rural Development, VA, and FHA construction-to-permanent loans.

USDA Loans: 0% Down in Rural Tennessee

A huge part of Tennessee is classified as rural under USDA’s definition. For those areas, the USDA Single Family Housing Guaranteed Loan Program is one of the most powerful tools you can use. The official USDA page for the Guaranteed Loan Program notes that it can be used to purchase or build a home in eligible rural areas with no money down, on a 30-year fixed-rate mortgage.

Some highlights for Tennessee builders:

• Up to 100% financing – USDA loans often require no down payment, as long as you’re within the moderate-income limit for your county.
• You can purchase land and build a new home, or buy a new construction from a builder, as long as the property meets USDA standards.
• Lenders can offer single-close construction-to-perm USDA loans, where you close once and the loan rolls from construction into a permanent mortgage.

To use USDA, your income needs to fall below certain limits, and the property must be in an eligible rural area. USDA’s site provides an eligibility map and income limit lookups so you can check whether your future homesite qualifies. In many Tennessee counties just outside major cities, the line between “urban” and “rural” is surprisingly close, so don’t assume you’re ineligible without checking.

A common strategy is to use a USDA construction-to-permanent loan as your main mortgage and then add THDA Great Choice Plus assistance on top. Since USDA already covers 100% financing, the THDA assistance can be used to cover closing costs, prepaids, and maybe even a rate buydown, dramatically reducing how much cash you need at closing.

VA Loans: Build With No Down Payment If You’re Eligible

For veterans, active-duty servicemembers, certain Guard/Reserve members, and some surviving spouses, the VA home loan is one of the best tools available. The official VA home loans hub states clearly that VA programs are designed to help eligible borrowers buy, build, or improve a home for their own occupancy.

With a VA-backed construction loan, you can:

• Build with no down payment in many cases, depending on the appraised value and lender overlays
• Avoid private mortgage insurance (PMI), which keeps your monthly payment lower
• Potentially waive the VA funding fee if you have a qualifying service-connected disability rating

The challenge is that not all lenders offer VA construction loans, so your first move should be to find a Tennessee lender experienced in VA one-time-close or construction-to-perm programs. The VA news release “VA offers construction loans for Veterans to build their dream homes” explains that such loans do exist, but emphasizes the importance of finding lenders who actively originate them.

Once you’re working with the right lender, the process looks similar to USDA or FHA construction loans: your builder is vetted, the plans are approved, and the lender pays the builder in draws during construction. After completion and final inspection, the loan converts into a standard VA mortgage.

For Tennessee veterans, this can be stacked with state and local help. You might build with a VA loan, then combine it with a reduced interest rate through THDA’s “Heroes” variation of Great Choice, or use city or nonprofit DPA for closing costs where allowed.

FHA One-Time Close: Low Down Payments for New Builds

If you’re not building in a rural area and you don’t have VA eligibility, FHA construction loans are often your best friend. The FHA One-Time Close construction-to-permanent loan is specifically designed to let borrowers buy land, finance construction costs, and convert to a long-term FHA mortgage with a single closing. Resources such as FHA.com’s One-Time Close overview and guides from mortgage marketplaces like LendingTree on getting an FHA construction loan explain how the program works.

Key benefits:

• 3.5% minimum down payment if your credit score is 580 or higher
• Ability to wrap land, construction, and permanent loan into a single FHA-insured mortgage
• More flexible credit requirements than many conventional construction loans

Because FHA loans are so common, it’s usually easier to find Tennessee lenders who offer FHA one-time-close than VA or USDA construction loans. You’ll still need a licensed builder and a full set of plans and specs, but FHA’s underwriting guidelines are familiar territory for loan officers.

For a Tennessee home build, the typical plan is: use an FHA One-Time Close as your primary loan, then structure the permanent phase to be a THDA Great Choice loan + Great Choice Plus for extra down payment and closing-cost help. That way, your 3.5% down payment can effectively come from THDA’s second mortgage, and your cash-to-close drops dramatically.

Conventional and Bank Portfolio Construction Loans

Finally, there are conventional construction loans offered by banks and credit unions across Tennessee. These often require:

• Higher down payments (5–20% of the total project cost)
• Stronger credit scores (commonly 700+)
• Stricter debt-to-income thresholds

But they can be a good fit if you’re building a more expensive home that exceeds FHA or USDA limits, or if you’re constructing something that doesn’t fit neatly into government-loan guidelines.

The upside is flexibility: some conventional construction loans will allow second homes or even certain investment properties, whereas FHA, USDA, and VA are strictly for primary residences. You can sometimes still combine these with local DPA programs or, in some cases, The Housing Fund’s down payment assistance, but you’ll rely less on THDA and more on bank-based solutions.

Local and Regional Assistance: Memphis, Nashville, Knoxville, Chattanooga & Beyond

Beyond statewide and federal support, Tennessee has regional and city-level programs that can add thousands of dollars more to your stack.

Memphis & Shelby County: City DPA, County DPA, and Habitat

In Memphis, the Office of Down Payment Assistance offers several programs that help income-qualified buyers cover down payment and closing costs on homes within city limits. The city’s official Down Payment Assistance Program page explains that funds can be used for both new and existing homes in Memphis, with different programs (Citywide DPA, targeted areas, and more) administered by the housing department.

Highlights include:

• Citywide DPA for first-time buyers under specific income limits
• Targeted area programs that encourage buying in certain neighborhoods
• Additional Homebuyer Incentive Programs for citizens, police, fire, and teachers, offering grants up to a percentage of the purchase price for eligible buyers

These programs can be combined with primary mortgages like THDA, FHA, USDA, or VA, as long as all guidelines are met.

In the surrounding county, the official description on Shelby County’s housing site notes that the Shelby County Down Payment Assistance Program provides loans to low- and moderate-income buyers for both existing and newly constructed homes anywhere in the county, as long as the price does not exceed $300,000. You can verify details via the county’s Homeownership Programs page or the dedicated Shelby repair/DPA site.

For very low-income buyers, Habitat for Humanity of Greater Memphis builds affordable new homes and finances them with 0% interest mortgages. Their Homebuying Program page explains that qualified families purchase homes at fair market value but repay them over 30 years at zero interest, after contributing volunteer hours and at least $2,000 toward closing costs.

For someone building or buying a newly built home in Memphis or Shelby County, the stack might look like:

• Primary loan: USDA, FHA, VA, or conventional (possibly via THDA)
• State DPA: THDA Great Choice Plus
• Local DPA: City of Memphis DPA or Shelby County DPA
• Nonprofit support: United Housing, Inc. or Habitat, depending on income

Nashville & Middle Tennessee: The Housing Fund and Nonprofit Builds

In the Nashville metro and across Middle Tennessee, one of the most important resources is The Housing Fund. According to their official Down Payment Assistance page, The Housing Fund offers affordable loans up to $35,000 to help cover down payment, prepaids, and closing costs for eligible buyers across Tennessee.

Key points:

• Assistance is typically structured as a second mortgage loan
• It can often be combined with THDA Great Choice and other first mortgages
• Income limits are generous (up to around 120% of area median income in some programs), making it accessible to many middle-income households in Nashville

If you’re building in or around Nashville, you might use an FHA or conventional construction-to-perm loan, then layer The Housing Fund’s DPA plus THDA’s Great Choice Plus to cover most of your cash needs.

Nashville also has Barnes Fund-backed projects and nonprofit builders (like Habitat for Humanity of Greater Nashville and other community development corporations) that develop new homes with built-in subsidies. While these are more targeted and project-specific, they can offer a path to affordable new construction if you qualify.

Knoxville & East Tennessee: Partner-Built Homes and USDA

In Knoxville, the city’s Down Payment Assistance Program is currently limited to homes developed by specific partners such as Home Source East Tennessee, Neighborhood Housing, Inc., and East Tennessee Housing Development Corporation. The city’s Down Payment Assistance Program page notes that applications are closed except for those partner projects, and that assistance is only available on homes built or sold through those organizations.

For buyers working with these nonprofits, the city and ETHDC can provide down payment and closing cost assistance, allowing you to purchase a newly built affordable home with little money down. The ETHDC description on Knoxville’s “Purchase an Affordable Home” page highlights that the organization develops quality, affordable homes and directly helps clients secure mortgages and down payment assistance.

In the broader East Tennessee region (outside Knoxville city limits), many communities lean heavily on USDA Rural Development and THDA programs. With large areas qualifying as rural, it’s common to build with a USDA 0% down loan in counties around Knoxville, the Great Smoky Mountains, and the Tri-Cities, then potentially add THDA or nonprofit assistance on top.

Chattanooga & Surrounding Areas: CNE and City DPA/Grants

In Chattanooga, both the city and Chattanooga Neighborhood Enterprise (CNE) play big roles in helping buyers. CNE is a long-standing nonprofit whose mission is to promote homeownership and provide down payment assistance and counseling. Their lending arm describes a Down Payment Assistance Program that can provide significant second-mortgage help for eligible buyers, while summaries in recent statewide overviews note that CNE can offer up to $15,000–$25,000 in down payment assistance depending on the product.

On top of that, the City of Chattanooga launched a modern First-Time Home Buyer Grant and Loan Program, highlighted in city and media documents. A description from the city’s housing action plan and local news explains that the program offers 0% interest loans and small grants to first-time buyers below certain income thresholds, with households under 80% of area median income eligible for up to $10,000 in grant help and up to $50,000 in a 0% interest loan to assist with closing costs and principal.

For someone building or buying a new home in Chattanooga, you might:

• Use USDA, FHA, VA, or a conventional construction-to-perm loan as your base
• Add CNE’s down payment assistance as a second mortgage
• Stack the City of Chattanooga grant/0% loan as a third layer

That combination can dramatically cut your required cash and even lower your effective monthly payment.

Who Typically Qualifies for These Programs?

Although every program has its own rules, there are recurring themes across Tennessee:

• Income limits: Most programs aim at low- to moderate-income households, often capped at 80–120% of area median income. THDA’s Great Choice has county-specific tables; USDA uses 115% of AMI for its guaranteed loans; city DPA programs often cap at 80% AMI or offer tiered help up to 100–200% AMI.
• Purchase price caps: Programs like THDA, Memphis DPA, and Shelby County DPA impose maximum home prices to keep assistance targeted—for example, Shelby County limits DPA to homes under $300,000, and Memphis sets different caps for existing vs. new construction.
• Credit standards: THDA Great Choice often needs a 640+ credit score; FHA One-Time Close is generally workable from 580+; USDA and VA lenders usually prefer at least 620–640, even if the program technically has no hard minimum.
• Homebuyer education: THDA, city DPA programs, and nonprofits almost always require a homebuyer education course or counseling session before closing.

The good news is that many Tennessee households who assume they “make too much” actually fit under the limits, especially in higher-cost metros. It’s worth checking real numbers on official pages instead of guessing.

Step-by-Step: How to Actually Use This Help to Build a House in Tennessee

When you’re ready to move from research to action, here’s a practical roadmap:

1. Decide Where You Want to Build

Your location determines which tools you can use:

• Rural or small-town Tennessee → likely USDA-eligible, so start by checking USDA’s Single Family Housing pages and eligibility tools.
• Memphis, Nashville, Knoxville, Chattanooga → look at city and county DPA programs, plus nonprofits like Habitat and CNE.
• Suburban growth corridors → focus on THDA, FHA, VA, and The Housing Fund, since these regions may not be USDA-eligible.

2. Check THDA and Local Programs Side by Side

Visit the THDA homebuyers page and read about Great Choice and down payment assistance. Then, cross-check with statewide roundups like Bankrate’s Tennessee first-time homebuyer assistance article to see how THDA combines with local programs such as The Housing Fund, CNE, and city DPA.

Make a quick list of:

• Your household income vs. program limits
• Rough target home price / build budget vs. caps
• Which city or county programs you might add (Memphis DPA, Shelby DPA, Chattanooga grant/loan, Knoxville partner homes, etc.)

3. Pick the Best Core Loan Type (USDA, VA, FHA, or Conventional)

Match your situation to a primary loan:

• USDA if you’re rural and under income caps
• VA if you have VA eligibility
• FHA One-Time Close if you want low down payment and flexible credit in a non-rural area
• Conventional construction-to-perm if your project or finances don’t fit the others

Then, ask lenders specifically: “Do you offer one-time-close construction loans for USDA / VA / FHA in Tennessee?” and “Are you a THDA-approved lender?” (You can find lender lists from THDA directly.)

4. Line Up Down Payment Assistance

Once you know your primary loan type, see how much DPA you can stack:

• THDA Great Choice Plus: up to $6,000 deferred or 5% up to $15,000 amortizing
• Local DPA: Memphis, Shelby County, Chattanooga, Knoxville partner programs
• Nonprofit DPA: The Housing Fund, CNE, or local housing organizations

In many real-world Tennessee scenarios, people cover most of their down payment + closing costs with a combination of THDA and local DPA, leaving only a small contribution from their own savings.

5. Choose a Builder Who Knows How to Work With These Loans

Not every builder is comfortable with government-backed construction loans and multiple layers of assistance. When you interview builders, ask:

• “Have you done USDA / FHA / VA construction loans before?”
• “Are you familiar with working with THDA borrowers?”
• “Can you provide the detailed cost breakdown and draw schedule my lender will need?”

A builder who has navigated these waters will keep your project moving and help ensure inspections, draws, and change orders don’t derail your financing.

6. Complete Homebuyer Education and Lock Everything In Before Breaking Ground

Most Tennessee programs require homebuyer education anyway, but even if it weren’t mandatory, it’s a smart move. THDA and nonprofit providers will walk you through budgeting, loan terms, and maintenance so you’re not shocked by anything later. Once your:

• Construction-to-perm loan is approved
• THDA and DPA approvals are in place
• Builder contract and plans are finalized

then you’re ready to close on the construction loan and start building with confidence that the financing is truly locked in.

Final Thoughts: Building in Tennessee Is Hard, But Help Is Real

Building a home anywhere in 2025 is expensive, and Tennessee is no exception. Land isn’t free, materials aren’t cheap, and builders are in demand. But Tennessee also has an unusually rich ecosystem of state, federal, and local assistance:

• THDA Great Choice + Great Choice Plus to lower your rate and cover down payment/closing costs
• USDA, VA, and FHA One-Time Close loans to handle the land and construction with low or no down payment
• City and county DPA programs in places like Memphis, Shelby County, Chattanooga, and Knoxville
• Nonprofit partners like The Housing Fund, CNE, and Habitat for Humanity that offer deep subsidies, 0% mortgages, or large second-loan assistance

If you take the time to learn the basics, talk to the right lenders, and pick a builder who understands these programs, you can dramatically reduce the upfront cash required to build and the monthly cost of owning your finished home. You’re not just “hoping you can afford it” anymore—you’re using every tool Tennessee offers to make your new house possible.

The best next step is simple: pick the county and city you want to live in, visit the relevant sites—like the THDA homebuyer portal, USDA Single Family Housing page, VA home loans hub, and your local DPA program’s website—and then schedule a conversation with a THDA-approved lender and a housing counselor. Once those conversations start, the path from “we’d love to build in Tennessee someday” to “we’re breaking ground” gets much clearer very quickly.