Guide · Tennessee

Picking your Heroes Plus down payment option

THDA's four Heroes Plus down payment options compared: payments, forgiveness, the 10-year clock, recapture tax and how each one fits a Tennessee first home.

The quick answer: You get one option, not a combination. The 5% loan (up to $15,000) gives the most cash but has a monthly payment. The $6,000 and $10,000 loans have no payment and are forgiven after 10 years if you stay put. The $25,000 loan is only for new construction and is paid back over 15 years at 0%.

Pour yourself a cup and let's talk about the part of the THDA loan that confuses almost everybody: which down payment option to pick. Heroes Plus is not one program with one amount. It's a menu, and you can only order one thing from it. Pick well and you keep cash in the bank. Pick badly and you could owe money you didn't plan on when you move.

The ground rules before you choose

A few things are true no matter which option you take:

Each option is a second mortgage recorded behind your THDA first mortgage. Even the forgivable ones are loans until they're forgiven.
The first mortgage is a 30-year fixed Homeownership for Heroes loan on FHA, VA or USDA.
You choose one option. THDA doesn't let you stack the $6,000 on top of the 5% loan.
The settlement fee on the down payment loan can be up to $200, and lender fees on the first mortgage are capped at $1,800.
If you're not in a Heroes job, the same menu comes with THDA's standard Great Choice Plus loan. You just don't get the 0.5% lower rate.

The four options on one page

Option	Amount	Interest	Monthly payment	How it ends
5% loan	Up to 5% of the price, max $15,000	Same rate as your first mortgage	Yes, over 30 years	Paid off like a regular loan
$6,000 forgivable	Up to $6,000	0%	None	Forgiven after 10 years
$10,000 forgivable (pilot)	Up to $10,000	0%	None	Forgiven after 10 years
New construction	Up to $25,000	0%	Yes, over 15 years	Paid off in 15 years

On both forgivable options, the full balance comes due if you sell or refinance before the 10 years are up. Keep that in your back pocket. We'll come back to it.

Option by option, plain and simple

The 5% loan: most cash, with a payment

This is the big one for existing homes. On a $300,000 house, 5% is $15,000. That more than covers the 3.5% FHA down payment ($10,500), and your lender tells you whether the rest can go toward closing costs and prepaids on your file.

The catch is the payment. The loan is repaid over 30 years at your first-mortgage rate. Example only: at the 6.125% Heroes rate on THDA's Nov. 6, 2026 rate sheet, $15,000 works out to about $91 a month. That payment counts in your debt-to-income ratio, and THDA's cap is 45%. If you're right at the edge, $91 can matter.

The $6,000 forgivable loan: no payment, smaller check

No interest, no monthly payment, and it's forgiven after 10 years. For a VA or USDA buyer who needs no down payment at all, $6,000 can go a long way toward closing costs. For an FHA buyer on a $300,000 home, it leaves a gap you'd fill from savings, a gift or a seller credit.

The $10,000 forgivable loan: the pilot

THDA started this one with rate locks on July 1, 2026. Same terms as the $6,000: 0%, no payment, forgiven after 10 years. Here's the wrinkle most people miss. On the Nov. 6, 2026 rate sheet, the Heroes first mortgage paired with the $10,000 option was priced at 6.250%, while the plain Heroes rate was 6.125%.

Example only: on a $289,500 loan, that eighth of a point costs about $23 more a month. Over 10 years that's roughly $2,800, which is less than the $4,000 extra you get compared with the $6,000 option. Keep the loan 30 years without refinancing, though, and the extra interest passes the $4,000. Whether the pilot stays around, and at what price, is something THDA hasn't said, so ask your lender on the day you lock.

The $25,000 new-construction loan

Only for a newly built or proposed home. It's 0% interest and repaid over 15 years, which is about $139 a month on the full $25,000. No interest is a good deal, but that payment is bigger than the 5% loan's because the payoff window is half as long. If you're touring model homes, ask the builder's sales office whether its preferred lenders are THDA-approved.

The question to ask yourself: how long will you stay?

This is where I'd slow down. Life changes. A deputy gets promoted to another county. A teacher has twins and needs a bigger place. If there's a fair chance you'll sell within 10 years, the forgivable loans aren't free money. You'd pay back the full $6,000 or $10,000 at closing on the sale, usually out of your equity.

Refinancing counts too. If rates fall and you refinance in year four, the forgivable balance comes due. Build that into any refinance math.

There's also a federal piece. Because THDA loans are funded with mortgage revenue bonds, a federal recapture tax can apply if you sell within the first 9 years. Most people never owe it, because all three conditions have to hit at once: you sell at a gain, your income that year is above the limit in your closing notice, and the formula produces an amount. Even then, the IRS caps it at half your gain. THDA also says Homeownership for Heroes loans are eligible for its Recapture Reimbursement Program, so ask your lender for the details in writing.

Can a city program add more?

Sometimes. Chattanooga is the clearest case: its city program offers up to $15,000 forgivable, and up to $21,000 total when paired with THDA through a city partnership. You'd need to buy inside city limits, under its $400,000 price cap, and put in at least $1,000 of your own money.

Memphis lists up to 10% of the price, max $25,000, for city police, front-line firefighters and Memphis-Shelby County Schools employees, subject to funding. Murfreesboro lists up to $10,000. Whether those can sit next to a Heroes Plus loan isn't spelled out, so a lender who works with both has to confirm. The full assistance directory lists every program by city.

A quick way to decide

FHA, existing home, short on cash: the 5% loan usually covers the most.
VA or USDA, planning to stay 10+ years: one of the forgivable loans, then compare the rate difference on the $10,000.
Tight debt-to-income ratio: a no-payment forgivable option keeps your ratio lower.
Buying from a builder: price out the $25,000 option against the 5% loan.
Likely to move in a few years: lean toward the 5% loan, which you'd simply pay off from the sale.

Ask your lender to run two Loan Estimates side by side with different options. Seeing the cash to close and the monthly payment next to each other makes the choice obvious most of the time. When you're ready, check your eligibility and we'll match you with a THDA-approved lender.

Things people ask

Can I combine two Heroes Plus options?

No. You pick one: the 5% loan up to $15,000, the $6,000 or $10,000 forgivable loan, or up to $25,000 on new construction.

What happens to the forgivable loan if I sell in year five?

The full balance comes due when you sell or refinance before 10 years. It's usually paid from your sale proceeds at closing.

Does the $10,000 option change my interest rate?

It did on THDA's Nov. 6, 2026 rate sheet: the first mortgage with the $10,000 option was 6.250%, compared with 6.125% for plain Heroes. Rates change daily, so compare on your lock date.

Will I owe recapture tax when I sell?

Only if you sell within 9 years at a gain and your income that year is above the limit in your notice. Most sellers owe nothing, the tax is capped at half the gain, and THDA says Heroes loans are eligible for its Recapture Reimbursement Program.

Free printable: the Tennessee homebuyer checklist. Papers to gather, steps to follow, programs to ask about and questions for your lender, all on a single sheet. Grab the checklist