How to Use THDA Great Choice Plus Without Getting the Repayment Wrong

The THDA Great Choice Plus program is not a grant. It is a second mortgage loan. The distinction matters enormously to your finances when you sell your Tennessee home, refinance your mortgage, or transfer the title — and most buyers discover this distinction too late. Here is how the program actually works, what the repayment triggers are, and how to choose between the two available options so the assistance fits your actual situation rather than the version that was advertised to you.

What THDA Great Choice Plus Actually Is

The Tennessee Housing Development Agency (THDA) provides down payment assistance to buyers who qualify for a Great Choice primary mortgage loan through one of two second lien structures, collectively called Great Choice Plus. Both structures are second mortgages — legal instruments secured against your home that must be repaid under specific conditions.

The program is funded through tax-exempt municipal bonds, which is why it carries restrictions on income, purchase price, and resale within the first nine years (federal recapture tax). It is a legitimate, well-structured program. The problem is not the program itself — it is the way it is marketed. The phrase "down payment assistance" implies money that does not need to be returned. For most buyers in most scenarios, it does need to be returned.

Option 1: The Deferred Option — $6,000 at 0% Interest

The deferred option provides $6,000 as a second mortgage with a 0% interest rate. No monthly payments are required. The balance is not due until the loan is forgiven — which happens at the end of the full 30-year term of your primary Great Choice mortgage, if you remain in the home as your primary residence without refinancing or transferring title.

What the marketing says: "No monthly payments, forgiven at 30 years."

What actually happens for most buyers: The average first-time home buyer moves within 7 to 10 years of purchase. When you sell your home, refinance the primary mortgage, or transfer the title for any reason before that 30-year mark, the entire $6,000 balance becomes immediately due in full at closing. It does not simply disappear. It is deducted from your home sale proceeds or paid as part of your refinance cash-out.

For a buyer who sells after 8 years with $40,000 in equity, the $6,000 repayment is manageable. For a buyer who sells after 3 years in a flat market with limited appreciation, it is a cash shortfall that needs to be funded out of pocket.

The recapture tax layer. Because THDA programs are backed by tax-exempt bonds, the IRS imposes a Federal Recapture Tax if you sell within nine years of closing, make a significant profit, and your income at the time of sale exceeds federally established limits. All three conditions must occur simultaneously. This is rare — but lenders are required to disclose it, and many do not explain it clearly. If you sell in year five after a strong market run and your household income has risen substantially, you may owe the IRS a portion of your gain. A tax professional can model this before you sell.

Who the deferred option fits:

• Buyers who genuinely plan to stay in the home for more than 10 years
• Buyers who want to preserve monthly cash flow and whose primary concern is avoiding monthly payments on the second mortgage
• Buyers who understand that $6,000 will be deducted from their equity at sale or refinance and have factored this into their future financial model

Option 2: The Amortizing Option — Up to $15,000 or 5% of Purchase Price

The amortizing option provides up to 5% of the purchase price, capped at $15,000, as a second mortgage. This loan is fully amortizing over 30 years at the same fixed interest rate as your primary Great Choice mortgage. Monthly payments are required from day one.

What this option actually costs. On a $300,000 purchase, 5% is $15,000. If the Great Choice primary mortgage rate is 6.5%, the monthly payment on a $15,000 30-year amortizing second mortgage at the same rate is approximately $95/month. That $95 increases your total monthly housing expense and directly impacts your debt-to-income (DTI) ratio — reducing the maximum primary mortgage balance you can qualify for.

A $200/month increase in housing expense at standard DTI limits reduces your qualifying purchase price by approximately $35,000. The $95/month second mortgage payment reduces your qualifying price by roughly $17,000 to $18,000. This means the buyer who takes the full $15,000 amortizing option is simultaneously reducing the maximum home price they can afford by about $17,000 to $18,000.

Who the amortizing option fits:

• Buyers who have very limited cash reserves and need maximum upfront assistance to cover both the down payment and closing costs
• Buyers who qualify for a high primary mortgage amount and the DTI impact of the second payment still keeps them within qualifying limits
• Buyers with stable, long-term income projections who can absorb the permanent monthly increase in housing expense
• Buyers who want more flexibility at sale — because the amortizing option does not have the same deferred-balloon-at-sale structure, the balance is gradually paid down over time rather than due in full from a fixed $6,000

Side-by-Side Comparison

The Eligibility Layer: What You Must Qualify For First

Both options are only available to buyers who qualify for a THDA Great Choice primary mortgage. The eligibility requirements are:

• Minimum credit score: 640 for every borrower on the loan
• First-time buyer definition: No ownership interest in a principal residence during the preceding three years (waived in 43 designated Targeted counties and for veterans/military through the Heroes program)
• Income limits: Total gross household income — including all adult occupants aged 18 and over, regardless of whether they are on the mortgage — must fall below county-specific limits. For 2026, the general statewide limit is $119,850 for households of 1-4 members (higher in Nashville MSA high-cost counties)
• Purchase price cap: Acquisition cost cannot exceed $400,000 in standard areas; some high-cost counties have adjusted limits
• Homebuyer education: Mandatory HUD-certified course or eHome America online completion before closing
• Lender: Must use a THDA-approved participating lender (THDA does not originate loans directly)

The Heroes Program: A Higher-Value Stack for Eligible Buyers

If you are active-duty military, a veteran with honorable discharge, a law enforcement officer, firefighter, EMT, paramedic, or a full-time K-12 teacher in a Tennessee public or private school, the Homeownership for Heroes program provides a permanent 0.50% interest rate reduction on the Great Choice primary mortgage. This is applied before the DPA option is selected.

On a $280,000 primary mortgage, a 0.50% rate reduction reduces the monthly payment by approximately $88/month and reduces total interest paid over 30 years by roughly $31,000.

The Heroes program also waives the three-year first-time buyer restriction across all 95 counties, allowing previous homeowners to access Great Choice programs.

The Mortgage Credit Certificate: The Often-Missed Stack

The Mortgage Credit Certificate (MCC) is a separate federal program that allows qualified first-time buyers to claim 20-30% of their annual mortgage interest as a direct dollar-for-dollar federal tax credit (up to $2,000/year). Unlike a tax deduction — which reduces taxable income — an MCC reduces your actual tax bill.

On a $250,000 mortgage at 6.5%, your annual mortgage interest in year one is approximately $16,100. With a 20% MCC, you receive a $2,000 federal tax credit (the maximum) directly off your tax liability. The remaining $14,100 can still be claimed as an itemized deduction.

MCCs are issued through THDA participating lenders before closing. Annual funding allocations can run out — verify availability with a THDA-approved lender early in the process.

Who This Is For

• First-time buyers in Tennessee who have been told the THDA Great Choice Plus assistance is "basically free money" or a "grant" and want to understand what they are actually agreeing to before signing
• Buyers trying to decide between the $6,000 deferred option and the amortizing option and needing a clear side-by-side with their specific financial situation in mind
• Buyers who plan to sell within 10 years and need to understand whether the deferred option will produce a surprise at their future closing table
• Active military, veterans, first responders, and teachers who want to understand the Heroes program stack on top of Great Choice

Who This Is NOT For

• Buyers using VA or USDA financing — these programs operate separately from THDA Great Choice and cannot be combined
• Buyers whose household income exceeds the THDA county income limits or whose target purchase price exceeds the $400,000 cap
• Buyers whose credit score is below 640 — THDA Great Choice has a hard minimum; these buyers need to work with a credit counselor before applying

Frequently Asked Questions

Is the THDA Great Choice Plus a grant or a loan?

It is a loan — a second mortgage. The $6,000 deferred option carries 0% interest and requires no monthly payments, which is why it is often described as "free." But it must be repaid in full if you sell, refinance, or transfer title before the 30-year term ends. The amortizing option requires monthly payments from day one and is not forgivable under any circumstances.

What happens to my THDA second mortgage if I sell my Tennessee home in 5 years?

With the deferred option, the full $6,000 balance is due at closing and is typically deducted from your sale proceeds by the settlement agent. With the amortizing option, the remaining principal balance (approximately $14,000 to $14,500 after five years of minimum payments) is due at closing. Both are paid from equity or, if there is insufficient equity, from personal funds.

Can I refinance my Tennessee home if I have a THDA Great Choice Plus second mortgage?

Refinancing the primary mortgage triggers immediate repayment of the deferred option ($6,000 due in full). The amortizing option may or may not be refinanced alongside the primary mortgage — it depends on the refinancing lender's willingness to subordinate or pay off the second lien. This is a critical consideration for buyers who may want to refinance when interest rates drop.

How do I find a THDA-approved lender in Tennessee?

THDA does not originate loans directly. All Great Choice and Great Choice Plus loans must go through a THDA-approved participating lender. THDA maintains a list of approved lenders on its website (thda.org). Not all national mortgage companies or local brokerages participate. Regional institutions such as Mortgage Investors Group, First Horizon Bank, and local credit unions are common participants.

Does the THDA Great Choice Plus program apply statewide or only in certain counties?

The program is available statewide for buyers who meet the standard eligibility requirements. However, THDA designates 43 "Targeted" counties — typically rural or economically distressed areas — where the three-year first-time buyer restriction is waived entirely, and buyers can access the program even if they have owned a home recently. Income limits and purchase price caps vary by county.

What is the federal recapture tax for THDA buyers?

The federal recapture tax is a potential IRS levy that applies if you sell your home within nine years of closing, make a significant profit on the sale, and your household income at the time of sale exceeds federally established limits. All three conditions must occur simultaneously for the tax to apply. THDA and participating lenders are required to disclose this possibility. In practice, the tax affects a small percentage of borrowers — those who both move within nine years and experience substantial income growth — but it should be factored into your plans if you expect your income to rise significantly.

The Tennessee First-Time Home Buyer Guide contains the full THDA program decision framework: a side-by-side comparison of the deferred and amortizing DPA options with DTI impact calculations, the Heroes program rate reduction, the Mortgage Credit Certificate mechanics, county income limit tables, the federal recapture tax conditions, and the mandatory homebuyer education requirement. It is the reference that THDA-approved lenders do not provide during the application process — the decision framework that belongs in your hands before you choose a loan product.

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