FHA Loans in Tennessee: 3.5% Down and the Rules Nobody Explains

Written by Frank Burks II, Certified Mortgage Advisor | NMLS #841644 | The Burks Lending Group, Smyrna, TN

A lot of people talk about FHA like it’s the loan you settle for. Training wheels. Something to get out of as fast as you can.

I see it differently. FHA has helped more first-time buyers get keys in Middle Tennessee than just about any loan I’ve closed in 25 years. It forgives things conventional loans won’t. It lets family help. It even lets the next buyer take over your rate someday.

I’m Frank Burks II. Here’s how FHA really works in 2026, what it costs, and when it’s the right call for you.

What Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration. The FHA doesn’t lend you the money. It insures the lender against loss, which lets lenders approve buyers with smaller down payments and less-than-perfect credit. It’s for a home you’ll live in, and that includes a duplex, triplex, or fourplex as long as you live in one of the units.

FHA Loan Requirements in 2026

Down payment: 3.5% with a credit score of 580 or higher. Scores from 500 to 579 can qualify with 10% down under FHA rules, though many lenders set their own higher minimums.

Credit score: FHA rules allow lower scores than most loan types, but each lender adds its own overlays. With 200+ lending partners, I can find the ones whose guidelines fit where your credit is today. If your score needs work, start with my guide to credit scores for buying a home in Tennessee.

Debt-to-income: FHA is more flexible here than most loans. With a strong automated approval, ratios can run well into the 40s and sometimes the 50s.

Gift funds: Your whole down payment can come as a gift from family, and FHA is clear about how to document it.

Seller help: The seller can pay up to 6% of the price toward your closing costs and prepaid items.

Occupancy: You have to live in the home as your primary residence.

What Does FHA Mortgage Insurance Cost?

This is where FHA gets a bad rap, so let’s look at the real numbers. FHA charges two kinds of mortgage insurance premium, or MIP.

Upfront MIP: 1.75% of the loan amount, usually rolled into the loan instead of paid at closing.

Annual MIP: 0.55% of the loan amount per year for most buyers putting less than 5% down, paid monthly. It drops to 0.50% with 5% or more down on most loan sizes.

How long it lasts: With less than 10% down, annual MIP stays for the life of the loan. With 10% or more down, it ends after 11 years.

Here’s a rough example on a $350,000 home with 3.5% down. The base loan is $337,750, and adding the upfront MIP brings it to about $343,661. At an example rate of 6.50% on a 30-year fixed, principal and interest runs about $2,172 a month, plus about $155 a month for MIP. Taxes and homeowners insurance come on top of that.*

“Life of the loan” sounds scary. In real life, most people don’t keep one mortgage for 30 years. Once your home builds equity, refinancing into a conventional loan can drop the MIP entirely. I keep an eye on that for my clients so they don’t overpay a day longer than they need to.

FHA Loan Limits in Middle Tennessee

FHA sets a maximum loan amount by county. For 2026, the baseline limit for a single-family home is $541,287, which covers counties like Bedford and Coffee. Counties in the Nashville metro, including Davidson, Rutherford, Williamson, Wilson, Sumner, and Maury, carry higher limits. Limits are also higher for two- to four-unit homes. I’ll confirm the exact limit for your county before you start shopping.

FHA Features Most Buyers Never Hear About

A second chance after hard times. FHA’s waiting periods after a setback are shorter than conventional. It’s typically two years after a Chapter 7 bankruptcy discharge and three years after a foreclosure. If you’re in a Chapter 13 plan, you may be able to buy after 12 months of on-time plan payments with court approval.

Family can co-sign. A relative who won’t live in the home can join the loan as a co-borrower and help you qualify on their income.

Buy a multi-unit with 3.5% down. Live in one unit of a duplex or fourplex and rent the others. Part of that rent may count toward qualifying. It’s one of the smartest ways I know to start building wealth through real estate.

It’s assumable. When you sell, a qualified buyer can take over your FHA loan at your rate. If you lock in a good rate today and rates rise later, that becomes a selling point for your home.

The FHA Streamline refinance. If rates drop after you buy, an FHA Streamline can lower your rate with less paperwork and often no appraisal, as long as the refinance gives you a real benefit.

FHA vs Conventional: Which One Fits?

FHA may fit better if: your credit score is still healing, your debt-to-income runs higher, you’ve had a bankruptcy or foreclosure in the past few years, or you want to buy a two- to four-unit home with a small down payment.

Conventional may fit better if: your score is strong, you can put 5% or more down, or you want mortgage insurance that goes away on its own once you reach enough equity.

The honest answer is that it depends on your numbers. I run both side by side for most buyers so you can see the monthly payment, cash to close, and long-term cost of each before you choose.

Can You Use Down Payment Assistance with FHA?

Yes. FHA pairs well with down payment assistance. I have multiple assistance programs and match each buyer to the one that fits their credit, income, and goals. My Tennessee down payment assistance guide walks through how it works.

And if you’re buying outside the city or you served in the military, check whether zero down fits you better. See my guides to USDA loans in Middle Tennessee and VA loans in Tennessee.

Frequently Asked Questions: FHA Loans in Tennessee

Q: What credit score do I need for an FHA loan in Tennessee?

FHA rules allow a 580 score with 3.5% down, and scores from 500 to 579 with 10% down. Many lenders set higher minimums of their own, so working with a broker who has access to many lenders can help you find one whose guidelines fit your score.

Q: How much is the down payment on an FHA loan?

The minimum down payment is 3.5% of the purchase price with a credit score of 580 or higher. On a $300,000 home, that is $10,500. The down payment can come from savings, a gift from family, or an approved down payment assistance program.

Q: How much is FHA mortgage insurance in 2026?

FHA charges an upfront premium of 1.75% of the loan amount, usually financed into the loan, plus an annual premium of 0.55% for most buyers putting less than 5% down. With less than 10% down, the annual premium lasts for the life of the loan. With 10% or more down, it ends after 11 years.

Q: What is the FHA loan limit in Tennessee for 2026?

The 2026 baseline FHA limit for a single-family home is $541,287, which applies in many Tennessee counties. Higher-cost areas, including several Nashville metro counties, have higher limits. Limits also rise for two- to four-unit properties.

Q: Can I get an FHA loan after bankruptcy or foreclosure?

Yes. FHA typically requires two years after a Chapter 7 bankruptcy discharge and three years after a foreclosure. Borrowers in a Chapter 13 plan may qualify after 12 months of on-time payments with court approval.

Q: Can I buy a duplex or fourplex with an FHA loan?

Yes. You can buy a property with up to four units with 3.5% down as long as you live in one of the units as your primary residence. Rental income from the other units may help you qualify.

Your First Key Doesn’t Have to Wait for Perfect

FHA was built for real people with real stories. A few dings on your credit, a smaller savings account, or a family member who wants to help aren’t deal breakers. They’re exactly what this loan was made for.

See my FHA program page at go.theburkslendinggroup.com/fha, or start your Secure Application and call me at 615.364.5700. I’ll run FHA and conventional side by side so you can see which one fits. Everybody deserves a key.

*Payment example is for illustration only and is not a rate quote or an offer of credit. It assumes a $350,000 purchase price, 3.5% down, a 6.50% interest rate on a 30-year fixed loan with 360 monthly payments, and FHA mortgage insurance. It does not include taxes, homeowners insurance, or HOA dues. The APR would be higher than the interest rate because of mortgage insurance and closing costs. Rates, terms, and loan limits change. Loan approval is subject to lender requirements.

Frank Burks II | Certified Mortgage Advisor | NMLS #841644

The Burks Lending Group empowered by NEXA Lending | NMLS #1660690 | 615.364.5700

theburkslendinggroup.com | fburks@nexalending.com | Equal Housing Opportunity