First-Time Homebuyer Programs in Iowa

Buying a home, especially if it's your first time, can be both exciting and daunting. Several helpful programs exist in Iowa to help with the process.

MoneyGeek’s guide to first-time homebuyer programs, such as zero-down-payment loans, low-down-payment loans and Iowa homebuyer programs, can help you choose the right option for you.

The process of buying a house can feel overwhelming for first-time homebuyers. Government-sponsored first-time homebuyer programs can help, particularly with down payments. A down payment is the first sum of money you put toward the purchase of a property and is typically 20% of the home’s cost. The larger your down payment, the lower your monthly payments.

Home loans are classified into four types: conventional, FHA, VA and USDA loans. Each has its own eligibility criteria. In addition, Iowa offers state-specific home loan programs available exclusively to residents.

Ultimately, your needs will determine which homebuyer program is best for you.

Zero-down-payment loans enable you to get a mortgage without paying a large chunk of money upfront. USDA and VA loans are two types of zero-down-payment loans.

USDA loans are underwritten by the federal government and made available by the United States Department of Agriculture.

Low- to moderate-income homebuyers purchasing a home in a rural area qualify for these loans. USDA loans don't require a down payment, enabling homebuyers to fund the entire purchase with the loan.

USDA loans include a guarantee fee of 2% of the loan amount. However, you don’t have to pay this fee in advance; you can roll it into the loan amount.

USDA loans require a minimum credit score of 640, a debt-to-income (DTI) ratio of no more than 41%, proof of steady work for the last two years and a willingness to submit to a thorough screening process.

A VA loan is a home loan guaranteed by the U.S. Department of Veterans Affairs (VA). VA loans are only available to qualifying U.S. military veterans, members of their families and National Guard members who have served on active duty and been honorably discharged.

VA loans don't require a minimum credit score and often have lower rates than conventional loans. Since most veterans qualify for these loans, they are excellent alternatives for first-time homebuyers.

You can use VA loans for various purposes, including purchasing a primary dwelling, mortgaging a secondary/rental property and refinancing.

Low-down-payment loans require less than a 20% down payment. Types of low-down-payment mortgages include Federal Housing Administration loans and conventional mortgages.

Fannie Mae and Freddie Mac are private entities that fund the majority of U.S. mortgages. They are not government-sponsored. These loans are also known as conventional loans or traditional mortgages.

The two types of conventional loans are as follows:

Conforming loans: Conforming loans are mortgages that meet the standards set by Fannie Mae and Freddie Mac. They must be conventional, fully amortizing, without negative amortization and with a fixed or adjustable rate. Non-conforming loans: Non-conforming loans are loans that do not meet Fannie Mae's and Freddie Mac's guidelines. Non-conforming loans are typically reserved for borrowers with lower credit scores, higher debt-to-income ratios and those purchasing very expensive homes.

You can qualify for a conventional loan with a minimum credit score of 620 and as little as 3% down, although you’ll need private mortgage insurance. Non-conforming mortgages require a credit score of at least 700.

FHA loans are insured by the Federal Housing Administration and benefit low-income first-time home buyers or those who don’t have much money for a down payment. The FHA provides mortgage insurance on these loans, so lenders can offer lower interest rates and make them more affordable for borrowers.

With FHA loans, borrowers with credit scores above 580 only need a 3.5% down payment, while those with credit scores between 500 and 579 must make a down payment of at least 10%.

Homebuyers can choose between 15- and 30-year terms with fixed interest rates and mortgage limits based on their state and county. The Department of Housing and Urban Development’s (HUD) online tool helps you calculate your maximum loan amount.

FHA 203(k) loans allow homebuyers to finance a home purchase and renovations in a single mortgage. They are ideal for people purchasing older homes that need work.

The loans cover various modification costs, including structural alterations or reconstruction, major landscape work, accessibility improvements and energy conservation improvements. Like FHA loans, these loans allow a 3.5% down payment.

Those looking to become homeowners in Iowa have options in addition to federal loans, thanks to the state's first-time homebuyer programs.

The Iowa Finance Authority’s FirstHome program offers a $2,500 grant for down payment and closing expenses or a loan of 5% of the home's selling price up to $5,000.

The first-time homebuyer program enables individuals or couples in Iowa to save money toward a down payment in a 10-year tax-deductible savings account.

HUD offers statewide and regional homeownership assistance programs to Iowa homebuyers. These include the Affordable Housing Program (AHP), the Housing Finance Authority (HFA), Habitat for Humanity and USDA Rural Development.

Buying your first home can feel overwhelming. MoneyGeek addressed frequently asked questions to help mortgage shoppers through the process.