THDA Great Choice Loan: Income Limits, Approved Lenders, and the DPA Truth

The THDA Great Choice program is Tennessee's flagship first-time home buyer loan — a 30-year fixed-rate mortgage designed for low-to-moderate-income households. It comes paired with optional down payment assistance that many buyers misunderstand entirely. Before you apply through a THDA-approved lender, here's what you actually need to know.

What Is the THDA Great Choice Home Loan?

The Great Choice loan is a 30-year fixed-rate mortgage originated through the Tennessee Housing Development Agency (THDA). THDA does not lend directly — they set the program terms, set the rate, and fund loans through an approved network of participating lenders.

Key features:

• Fixed rate for 30 years — THDA sets the rate, and it applies to all lenders in the network. Borrowers cannot buy down the rate with discount points.
• Works with FHA, USDA, VA, or conventional (Freddie Mac HFA Advantage) — Great Choice is a rate and assistance program layered on top of a standard loan type, not a standalone loan product.
• Can be paired with Great Choice Plus — the optional down payment and closing cost assistance second lien.

Who Qualifies: The Three Main Requirements

1. Credit Score

Every borrower on the loan must have a minimum middle credit score of 640. The "middle score" is the middle value among the three major bureau scores (Equifax, Experian, TransUnion). If one borrower falls below 640, the entire application fails the credit threshold — even if the other borrower's score is excellent.

Buyers below 640 are not automatically excluded from homeownership, but they won't qualify for THDA pricing. THDA-approved housing counseling agencies can help build credit profiles.

2. First-Time Buyer Requirement

THDA defines "first-time home buyer" as someone who has not held an ownership interest in their principal residence at any point in the preceding three years. This mirrors the standard federal definition.

There are two important exceptions:

• Targeted counties: Tennessee has 43 designated "Targeted" counties (primarily rural, lower-income areas). If the property is in a targeted county, the three-year restriction is waived for all buyers.
• Military veterans: Qualified veterans can use Great Choice in any of Tennessee's 95 counties without the three-year restriction.

3. Income and Purchase Price Limits

Total household income is calculated on all adult occupants aged 18 and older — not just the mortgage applicants. This is a critical distinction. A household where one partner is on the mortgage and the other has income is still subject to the combined household income limit, even if the second person isn't on the note.

Income limits vary by county and household size. As a general benchmark for 2026, limits in Tennessee's standard (non-high-cost) areas typically fall in the range of $80,000 to $115,000 depending on county and household size.

Purchase price limits are also county-specific, with a maximum statewide cap of $400,000 in standard areas. Some high-cost counties have adjusted limits.

Check THDA's current tables at thda.org — income and purchase price caps are updated annually.

The Great Choice Plus DPA: Two Structures, Very Different Implications

Most Tennessee buyers who use Great Choice also opt for the Great Choice Plus down payment assistance. This is where the financial misunderstanding becomes costly.

Great Choice Plus is not a grant. It is a second mortgage. There are two structures:

Option 1: The Deferred Second Mortgage ($6,000)

• 0% interest, no monthly payments
• Forgiven only at the end of 30 years
• If you sell, refinance, or move out before 30 years, the full $6,000 is due at closing

Marketing often describes this as "forgivable" or "no-payment" — both technically true but deeply misleading. Because the average first-time buyer either sells or refinances within 7–10 years, the vast majority of borrowers will repay this $6,000 out of their home equity at a future closing table. It's a deferred loan, not a gift.

Option 2: The Amortizing Second Mortgage (Up to 5% / $15,000 max)

• Same interest rate as your primary Great Choice mortgage
• Monthly payments required from day one
• Never forgiven

This option provides more upfront purchasing power — up to $15,000 to cover down payment and closing costs — but it permanently increases your monthly payment. Lenders count the second mortgage payment against your debt-to-income ratio, which lowers the maximum first mortgage you qualify for. More assistance upfront means a smaller home you can afford.

Neither option is universally better. The deferred $6,000 is simpler and costs nothing unless you move or refinance. The 5% amortizing option covers more cash at closing but carries an ongoing cost.

The Federal Recapture Tax

One disclosure that many lenders skip: because THDA programs are funded through tax-exempt municipal bonds, they're subject to a federal Recapture Tax provision. If you sell your home within nine years of purchase, earn a significant profit, and your household income at the time of sale exceeds certain federally set thresholds, a portion of your gain may be taxed under this provision.

All three conditions must occur simultaneously for the tax to apply. It's not common. But THDA is legally required to disclose it, and you should understand it before you close.

Homeownership for Tennessee Heroes

For military personnel, veterans, firefighters, law enforcement officers, EMTs, paramedics, and — as of May 2026 — full-time K-12 public and private school teachers, THDA's Homeownership for Heroes program offers:

• A 0.50% interest rate reduction on the Great Choice primary rate
• Waiver of the three-year first-time buyer restriction statewide
• Ability to combine with VA or USDA 100% financing

The teacher expansion is new in 2026, reflecting state concern about housing affordability for educators. If you're a teacher in any Tennessee county, you now qualify for Heroes pricing without the first-time buyer lookback requirement.

THDA Approved Lenders: How to Find One

THDA maintains a published list of approved originating lenders at thda.org. Because THDA doesn't lend directly, you must work with a lender on their approved list to access Great Choice pricing and DPA.

Not all national mortgage lenders participate in THDA programs — some large banks and online lenders don't. Local community banks, regional banks like First Horizon (Memphis-based), and credit unions like ORNL Federal (Knoxville) and TVA Federal often participate and understand the program mechanics well.

When interviewing lenders, confirm:

1. They are currently active THDA participants (check the list, don't just take their word for it)
2. They can originate FHA, USDA, or conventional HFA loans (depending on what you qualify for)
3. They've closed Great Choice Plus DPA loans recently — not just eligible to, but actually doing it

Mandatory Homebuyer Education

All borrowers using Great Choice, Great Choice Plus, or Heroes programs must complete a HUD-approved homebuyer education course before closing. You can satisfy this requirement through:

• Any HUD-approved in-person or online course
• The eHome America platform (online, with a one-hour follow-up call with a certified housing counselor included)

Budget two to four hours for a typical online course. Some lenders require completion before issuing a pre-approval; others allow it up to the week before closing. Confirm the timing requirement with your lender early.

Pairing THDA with USDA in Rural Areas

In Tennessee's vast rural geography — nearly all counties outside the Nashville, Memphis, Knoxville, and Chattanooga metro cores qualify for USDA Rural Development eligibility — buyers can potentially stack THDA Great Choice pricing with USDA's zero-down-payment structure. USDA handles the 100% financing; THDA provides the below-market rate. The Great Choice Plus DPA can then cover closing costs entirely.

For a moderate-income buyer purchasing a $250,000 home in a rural county, this combination can reduce cash-to-close to a few hundred dollars beyond the inspection deposit and pre-paid items. It's the most powerful first-time buyer financing stack available in Tennessee.

The Tennessee First-Time Home Buyer Guide includes a complete program comparison matrix, county-by-county income limit references, and a step-by-step THDA application timeline so you know exactly what to expect from first contact with a lender through closing.

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