General information, not lending advice

FHA Loans for Tennessee Buyers

Many buyers in Manchester and Coffee County ask me about FHA loans, usually because they want a smaller down payment or their credit is still building. This guide explains how FHA loans work, using the rules in the HUD Single Family Housing Policy Handbook 4000.1, the official FHA loan limit for Coffee County and plain language from the Consumer Financial Protection Bureau (CFPB).

This is general information, not lending advice. Lenders can add their own requirements, and the rules change. Talk with a lender about your own situation before you make a decision.

What an FHA loan is

The CFPB explains that FHA loans are made by private lenders and insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA does not lend the money. It insures FHA approved lenders against losses if a homeowner defaults, and the cost of that insurance is passed along to the homeowner. The CFPB says the standards for qualifying are generally more flexible than for conventional loans.

According to the CFPB, FHA loans allow down payments as low as 3.5 percent, allow lower credit scores than most conventional loans and have a maximum loan amount that varies by county.

Down payment and credit score

HUD Handbook 4000.1 ties the most you can borrow to your credit score. FHA calls the score it uses the Minimum Decision Credit Score. When three scores are reported, it is the middle score. When two different scores are reported, it is the lower one. With more than one borrower, the lender uses the lowest of those scores.

• Score of 580 or higher. You are eligible for maximum financing. For a purchase, the maximum loan to value is 96.5 percent, so you need at least 3.5 percent down.
• Score from 500 to 579. The maximum loan to value is 90 percent, so you need at least 10 percent down.
• Score below 500. The borrower is not eligible for FHA insured financing.

These percentages are figured on the lower of the purchase price or the appraised value. HUD calls the required down payment the Minimum Required Investment. Ask each lender whether it has its own credit requirements on top of FHA's.

Mortgage insurance: upfront and annual

The CFPB says mortgage insurance is required on all FHA loans, and it protects the lender, not you. FHA collects two premiums.

Upfront premium. Handbook 4000.1 sets the upfront mortgage insurance premium at 1.75 percent of the base loan amount for most purchase loans. It can be financed into the loan or paid in cash at closing, but HUD says it must be entirely one or the other. It is not refundable, except in connection with refinancing into a new FHA insured loan.

Annual premium. This one is paid in monthly installments as part of your payment. For a loan longer than 15 years with a base loan amount of $726,200 or less, which covers every FHA loan within the Coffee County limit, the HUD chart sets the annual premium this way:

• More than 95 percent loan to value (for example, the 3.5 percent minimum down payment): 0.55 percent per year for the life of the loan.
• More than 90 percent up to 95 percent: 0.50 percent per year for the life of the loan.
• 90 percent or less (10 percent or more down): 0.50 percent per year for 11 years.

Loans of 15 years or less have lower rates in the same chart. Your Loan Estimate shows the dollar amounts for your loan, and the CFPB notes that the upfront premium appears in the section for services you cannot shop for. My buyer closing costs guide walks through the rest of the Loan Estimate.

The 2026 FHA loan limit in Coffee County

HUD sets FHA loan limits by county and publishes new limits each calendar year. According to the HUD FHA Mortgage Limits lookup, the 2026 FHA forward mortgage limits for Coffee County, Tennessee (Tullahoma Manchester metro area) are:

• One family home: $541,287
• Two family: $693,050
• Three family: $837,700
• Four family: $1,041,125

These match FHA's basic standard limits for 2026. The limit applies to the base loan amount, and HUD says the financed upfront premium can be added on top. Shopping in another county? Look up the current limit for that county on the HUD FHA Mortgage Limits page by choosing the state and county.

You must live in the home

FHA loans are for a principal residence. Handbook 4000.1 says at least one borrower must move into the home within 60 days of signing the mortgage and intend to live there for at least one year. FHA generally will not insure more than one principal residence for a borrower at the same time, with limited exceptions such as some job relocations. FHA loans can be used for homes with one to four units, as long as you live in one of them.

The appraisal and property condition

An FHA appraiser does more than set a value. Handbook 4000.1 says the appraiser must report whether the home meets HUD's Minimum Property Requirements, which HUD describes as general requirements that every FHA insured home be safe, sound and secure. If the appraiser finds defects, the lender may only approve the property after confirming they have been corrected.

An FHA appraisal is not a home inspection. HUD requires lenders to give buyers form HUD 92564 CN, For Your Protection: Get a Home Inspection, at first contact. Please still hire your own inspector. My home inspection guide explains what to expect, and for rural homes see my septic and well water guides.

Gift funds and seller help

Handbook 4000.1 allows gifts toward an FHA purchase from:

• A family member
• Your employer or labor union
• A close friend with a clearly defined and documented interest in you
• A charitable organization
• A government agency or public entity with a program that helps low or moderate income families or first time homebuyers

The lender needs a gift letter signed and dated by the donor and the borrower with the donor's name, address and phone number, the relationship, the dollar amount and a statement that no repayment is required. The lender also documents how the money moved, so keep bank records. HUD says cash on hand is not an acceptable source for a donor's gift.

Your 3.5 percent minimum cannot come from the seller, anyone else who benefits financially from the sale or anyone reimbursed by them. Sellers, agents, builders and other interested parties may contribute up to 6 percent of the sales price toward closing costs, prepaid items, discount points and the upfront premium. Ask your lender how any seller credit fits your loan before we write the offer.

FHA compared with conventional, USDA and VA loans

• Conventional loans. The CFPB says private mortgage insurance is usually required on a conventional loan with less than 20 percent down, and borrowers have the right to ask to cancel it once the balance is scheduled to reach 80 percent of the original value, with automatic cancellation at 78 percent in general. FHA premiums follow the HUD chart above instead. The CFPB says that for borrowers with good credit and a medium down payment, FHA loans tend to cost more than conventional loans, while for lower credit scores or smaller down payments FHA can often be the cheaper option.
• USDA loans. For eligible buyers and eligible rural addresses, USDA guaranteed loans offer 100 percent financing with income limits. Much of Coffee County is rural, so see my USDA home loans guide.
• VA loans. For eligible veterans and service members, VA backed loans generally need no down payment and have no monthly mortgage insurance, though most borrowers pay a funding fee. See my VA home loans guide.

The CFPB's advice is simple: ask lenders for quotes on more than one option and compare total costs. A lender can run the numbers side by side for you.

FHA and THDA programs

The Tennessee Housing Development Agency says most of its Great Choice Home Loans are insured by FHA or USDA Rural Development, and with FHA that means borrowing up to 96.5 percent of the price, so you need at least 3.5 percent down. THDA's Great Choice Plus down payment assistance can help with loan related costs, including the down payment and closing costs, for eligible borrowers. THDA's Homeownership for Heroes is offered on FHA, USDA and VA loans. Income, price and credit requirements apply, so check thda.org and my first time home buyer guide.

Questions to ask your lender

• Do you have any credit score or debt requirements beyond FHA's minimums?
• Should I finance the upfront premium or pay it at closing?
• How long will the annual premium last on my loan?
• Is an FHA loan, a conventional loan or a THDA loan the lower total cost for me?
• If I am looking at a condo, is the project eligible for FHA financing?

The CFPB says HUD keeps a list of FHA approved lenders, and you can call HUD at (800) 225 5342 with questions about FHA programs.

Keep reading:

• First time home buyer help in Tennessee
• Buyer closing costs in Tennessee
• USDA home loans in Coffee County
• Using a VA home loan in Manchester
• Printable home buyer checklist
• All Manchester guides

Thinking about an FHA loan?

I help buyers across Manchester and Coffee County line up preapproval, write offers that work with FHA financing and keep the appraisal and inspection on track. Call or text me at (615) 497 1658, or request my buyer guide below and tell me what you are looking for.

Common questions

Matt Sargent is a Tennessee licensed affiliate broker with Keller Williams who helps buyers and sellers in Manchester and Coffee County. Call (615) 497 1658 or send a message.