How to Buy a House in Iowa: A Homebuyer’s Guide

Updated: October 21, 2023

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As of 2022, the median home price in Iowa is $199,882. Prices in the state have increased 10.2% year-on-year, but it’s lower compared to the U.S. average house price of $357,589.

Iowa is among the cheapest places in the U.S. to buy a home. However, prices in the state have consistently gone up in recent years, which follows the trend across the country.

If you’re planning to buy a house in Iowa, it’s a good idea to understand the entire process before you commit to anything. Remember, homebuying involves a mortgage that you’ll have to pay for decades, and you’ll likely live in that house for several years. You have to be sure that you’re making the best decision for your needs.

Key Takeaways

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The average price of a house in Iowa is $199,882, which is cheaper than the median home price in the U.S.

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You typically need a 20% down payment to qualify for a mortgage in Iowa. Nonetheless, you may qualify for low and zero-down-payment programs, which significantly reduces the cost of owning a home.

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To buy a house in Iowa, you need to find the best location that fits your needs and preferences. You’ll then have to calculate your mortgage, get pre-approved, find your desired home, do the necessary inspections and close the sale.

Choose an Ideal Location

Location has a significant impact on how much it costs to buy a house in Iowa. Neighborhood amenities, accessibility, appearance and other similar factors may bring prices up or down.

For instance, an average house in Des Moines costs $194,461. That’s significantly more expensive compared to the median house price in Newton at $143,299.

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WORK WITH A REAL ESTATE AGENT

A real estate agent can be helpful for you if you’re buying a house in Iowa. They will help you find the best house that’s available for your preferences and budget.

You should look for a reputable real estate professional to ensure you’ll get the best advice and avoid costly mistakes.

Here are some tips for finding a credible real estate agent:

  • Get referrals from your family, friends and coworkers
  • Verify the agent’s license
  • Call references
  • Ask the agent about their knowledge of the neighborhood
  • Compare prices and make sure they’re reasonable
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CALCULATE THE COST OF LIVING

Iowa has a lower cost of living compared to the national average, but the cost of living within the state varies among cities.

For your financial well-being, it’s a good idea to live in a place with a lower cost of living compared to your income. As you research your preferred cities in Iowa, check the average cost of these items in the places you’re considering:

  • Food
  • Utilities
  • Healthcare
  • Transportation
  • Education
  • Entertainment

You can use MoneyGeek’s cost of living calculator to estimate the ideal income for several cities in Iowa.

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CONSIDER AFFORDABLE NEIGHBORHOODS

Iowa is among the more affordable places to live in the U.S. If you’re thinking of buying a house in the state, you can lower your expenses by choosing a house that’s located in a low-cost-of-living area.

It’s usually more affordable to live in the suburbs compared to cities. However, you may have to trade off access to hospitals, places of work and other social amenities if you decide to live away from urban areas.

Cities like Randall, Zearing and Story City ranked among the cheapest cities in the state based on Zillow’s rankings.

Beyond house prices, you should also consider the cost of living to ensure you can actually afford to live in your preferred location once you move in.

Calculate Mortgage Rates

It’s important that you understand the mortgage options that are available for you if you’re buying a home in Iowa. Since rates vary depending on the loan type, your profile and financial situation will determine the best mortgage for your needs.

Your mortgage options and interest rate will depend on your income, credit rating and other relevant factors. Shopping around and comparing quotes is the best way to get the lowest offers.

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SEE YOUR MORTGAGE OPTIONS

Factors such as your profile and loan preferences will affect your mortgage’s interest rate.

If you have a high credit score, you’ll have more options and can access low-interest loans. Conversely, if you have bad credit, getting a loan will become difficult and costly.

Here are the average interest rates in Iowa for various 30-year mortgages:

That said, rates may vary based on your profile and the market conditions at the time of your loan application.

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USE A MORTGAGE CALCULATOR

It’s important that you calculate your future mortgage payments before you buy a house. Doing this is necessary, so you’ll know if you can afford your potential monthly payments.

You can use MoneyGeek’s mortgage calculator to understand your loan’s different costs. All you need to do is input relevant loan details. Then, the tool will estimate your principal, interest, insurance, tax and other potential payments.

Additionally, our FHA vs. conventional loan calculator can help you if you’ve qualified for both loans. This tool details the potential costs of each loan, which you can use to assess which will be a better fit for your needs.

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KNOW YOUR QUALIFICATIONS

The loans you can access and your potential interest rates are limited by your credit and financial profile.

If your background indicates that you’re a low-risk borrower, it’s likely that you’ll be able to get more loans and better rates.

Lenders typically base your creditworthiness using these factors:

  • Credit score: If you have a high credit score, loan companies will see you as more likely to repay your loan as scheduled. There will be less risk in lending you money, so you may have lower interest rates.
  • Income: Your income is one of the primary indicators that you have the means to repay the loan. Moreover, lenders typically set debt-to-income ratio requirements, which you must meet before they grant your application.
  • Down payment: Most loan companies don’t provide 100% financing and will require you to pay a down payment. Generally, you can get lower interest rates by having a high down payment amount.

Prepare Down Payment Requirements

Different loan products have varying down payment requirements. You may need to pay as little as 3.5% for some mortgages, while other loans require a 20% down payment. Meanwhile, if you’re qualified for a VA or USDA home loan, you might be able to get a no-down-payment option.

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DETERMINE DOWN PAYMENT REQUIREMENTS

One of the biggest costs that you need to anticipate if you’re buying a house in Iowa is the down payment. Most lenders won’t finance the entire house price, so you’ll need to pay an amount upfront.

The down payment you’ll have to pay will depend on the loan you’re getting, but most conventional loans require 20% of the house price. Nonetheless, government-backed home loans offer a 0% down payment for qualified borrowers.

Notably, if you’re a veteran or active military personnel, you may qualify for a zero-down-payment VA home loan. You can also get a no-down-payment home loan from USDA if you’re buying a house in a rural area.

Keep in mind that your down payment will affect the terms of your loan. You’ll receive lower interest rates and monthly payments if you have a high down payment amount.

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CALCULATE MORTGAGE INSURANCE

If you’re paying less than a 20% down payment, most lenders will require you to get private mortgage insurance (PMI). PMI protects the lender in case you default on your mortgage. Here are the most common types of loans and their PMI requirements:

  • Conventional loans: You need to get a PMI if your down payment is less than 20% of the home’s price.
  • FHA loans: Although you won’t be required to get a PMI for a low-down-payment FHA home loan, you’ll need to pay a mortgage insurance premium (MIP) upfront.
  • VA loans: You won’t have to worry about PMI for most VA loans.
  • USDA loans: You may be required to pay a guarantee fee for a low-down-payment USDA home loan, but you won’t have to pay PMI.
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DOWN PAYMENT ASSISTANCE PROGRAMS

You may qualify for a down payment assistance program if you’re a first-time homebuyer in Iowa. These programs are extremely useful as they remove a significant portion of the costs that come with buying a house.

Here are some of the down payment assistance programs in Iowa:

  • FirstHome: Offers a $2,500 grant or a loan of up to $5,000 to qualified first-time homebuyers in Iowa.
  • HUD: The U.S. Department of Housing and Development (HUD) gathered a list of resources that you can use if you’re a first-time homebuyer in Iowa who is looking for financial assistance.

Get Pre-Approved for a Mortgage

It’s recommended that you get pre-approved for a mortgage before you look for houses in Iowa. This makes you a more attractive buyer for sellers and gives you an idea of how much money you’re working with.

It’s important to note the difference between pre-approval and prequalification. Pre-approved means the lender is committed to providing you with a certain amount of money to purchase a home. A prequalification only means you qualify for a loan. However, this is not a guarantee.

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GATHER NECESSARY DOCUMENTS

For a stress-free application process, we recommend that you gather the documents you’ll need for the loan before you approach a lender. Most lenders will ask for your personal and financial documents, which will be used to check your identity and credit history. They will then study your creditworthiness based on the documents you submitted. Generally, you’ll have to provide these documents:

  • Driver's license
  • Social Security card
  • Most recent pay stubs
  • Three years of tax returns with W-2s
  • Bank statements
  • Credit cards and debts list

Note that some lenders may ask for more documents, depending on your profile.

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TIME YOUR PRE-APPROVAL

You can avoid wasting time and money by timing your pre-approval properly.

Obtaining a pre-approval from a bank may take up to 10 days, but the processing time may vary depending on the lender or your profile.

Once you’ve received a pre-approval, know that it’ll expire within 30 to 90 days. Thus, it’s recommended that you only apply for pre-approval if you’re prepared to buy a house.

You’ll need to start over if your pre-approval lapses, so plan your timelines accordingly.

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RECEIVE PRE-APPROVAL LETTER

Loan companies usually provide a pre-approval letter if you’re pre-approved for their loan. This document states the commitment of the lender to finance your home purchase up to a certain amount.

A pre-approval letter does not guarantee that you’ll receive the loan. However, it’s a strong indicator for sellers that you’re a serious buyer who can secure financing.

Although it’s possible for you to get several pre-approvals from different lenders, it’s not usually a good idea. Loan companies often conduct hard credit checks that affect your credit score before they provide pre-approvals.

Applying for multiple pre-approvals may damage your credit and may lead to higher interest rates once you’re finalizing the mortgage. Additionally, keep in mind that pre-approvals will expire within 30 to 90 days.

Conduct a Home Inspection

Home inspections are a necessary step in your homebuying journey. They are crucial in identifying potential problems in the house.

If you accept the house without inspecting it first, you may have to deal with costly repairs or safety issues in the future. Additionally, lenders usually require that the house undergo a professional home inspection before they approve your loan application.

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CONTACT A LICENSED INSPECTOR

We suggest that you look for a licensed home inspector to assist you during your house inspection. They will ensure that you receive an accurate and thorough report about the home so that you can make a better-informed decision about the purchase.

Check these areas during your house inspection to rule out any safety issues or construction flaws:

  • Roof
  • Foundation
  • Heating and cooling systems
  • Electrical system
  • Plumbing system
  • Windows
  • Doors
  • Grounds
  • Attic and basement
  • Major appliances
  • Chimney

You can use the issues you find during the house inspection when negotiating the price. However, rethink the purchase if the house has structural damages.

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FOLLOW IOWA-SPECIFIC INSPECTIONS

Although home inspection is not regulated in Iowa, inspectors are required to follow certain inspection and business practices.

It’s recommended that you hire a professional home inspector to ensure that the house does not have any serious issues or construction flaws. They have a better understanding of houses and can identify issues that are not visible to the naked eye.

House inspections are done to ensure that your future house is safe from structural and mechanical issues. Note that certain counties or localities may have their own inspection guidelines. You may consult with your real estate agent to know the inspection laws in your area.

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GO THROUGH APPRAISAL

Lenders will perform a home appraisal on your preferred house so they can verify its market value. They do this as part of their due diligence to ensure that the property is worth the money you’ll be paying for it.

This is because the bank will seize your home in case you default on your mortgage. It is their way of making sure that they’ll get their money back if they have to sell the unit.

During the appraisal process, professional appraisers will do a thorough study of the house. They’ll check its condition, appearance, size, location, amenities, number of bedrooms and other features. They’ll also study the prices of homes sold within the area to have a better understanding of the market.

Close Your Mortgage Loan

After the house inspection and appraisal, the bank can now issue you a loan offer. Study the document closely. Then, if you agree with the terms, you can now start the closing process.

Note that there are various expenses that you may have to pay during this stage. If you’re having difficulties securing funding for your closing costs, there are programs in Iowa that can help you.

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SIGN ALL DOCUMENTS

During the closing process, the bank makes an offer and discloses the terms of your loan. Study all the details that they’ll provide and make sure that they’re consistent with what you’ve agreed to earlier.

Once you’ve accepted the bank’s offer, you will have to sign these documents:

  • Final loan application: The bank will require you to sign a loan application form that confirms the accuracy of the information you’ve provided.
  • Mortgage note: This document binds you to the mortgage. It lists the loan amount, interest, payment schedule and other relevant information about the loan.
  • Property deed: This includes the technical details about the property, including its ownership.
  • Closing disclosure: This document lists the terms of your loans. The bank must give you a copy of this disclosure three banking days before closing the mortgage.
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PAY CLOSING COSTS

In Iowa, closing costs usually range from 2% to 5% of the purchase price. These may vary based on your location, lender and other factors.

Here are the closing costs that you’ll have to pay as a homebuyer:

  • Origination fee: Banks may charge an origination fee, which is usually a small percentage of the total loan amount.
  • Escrow: The lender may require you to deposit two months' worth of property tax and insurance payments into an escrow account.
  • Title search fee: You may have to request the services of a title company to check the ownership and legal integrity of the house you’re buying.
  • Lender fees: The bank may charge you the costs that they’ve incurred to process the loan, such as an appraisal fee.
  • Third-party fees: You’ll have to pay for various third-party fees, including inspection fees, attorney fees, homeowners association dues and more.
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COMPLETE YOUR HOME PURCHASE

If you’re like most people, buying your first house marks a significant life milestone. The process can be overwhelming, but following a step-by-step process can help you have a successful homeownership journey.

The first step is finding the best place to buy a home in Iowa. Next, you’ll have to anticipate your mortgage payments and down payment. Afterward, you’ll have to get a pre-approval letter from a bank and look for your desired house. Once you’ve picked your preferred home, you’ll have to do a home inspection. Then, you can close the mortgage.

Once the funds are released, carefully review the documents the bank has given you and note your first due date. It’s a good idea to set up automatic payments or payment reminders to help you pay your mortgage on time.

Iowa Homebuying Details

There are different homebuying practices and regulations among states. Additionally, you’ll have to evaluate state-specific considerations as you buy a house in Iowa.

Notably, Iowa has a higher property tax rate compared to the national average. Additionally, the state experiences four seasons throughout the year and severe weather conditions like tornadoes, which may increase your insurance rates.

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Tornadoes

Iowa experiences tornadoes, albeit not as frequent as other states. Nonetheless, you may have to purchase a comprehensive insurance policy to ensure the safety of your investment.

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Income Tax

Iowa has a progressive tax rate. As such, if you’re a high-earning individual, you may have to deal with a higher income tax.

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Homeowners Assistance

If you’re having difficulties with your property expenses, you may seek the assistance of the Iowa Homeowners Assistance Fund. They help eligible homeowners with mortgage payments, property taxes, insurance, homeowner association fees and other expenses.

Frequently Asked Questions About Buying a Home in Iowa

Buying a house is a major financial and personal commitment, and the process may be challenging. MoneyGeek responded to some frequently asked questions about buying a home in Iowa to help you on your homeownership journey.

What are the most important questions to ask when buying a house in Iowa?
Is buying a house in Iowa a good idea?
Is it wise to buy a house in Iowa in 2023?
How much income do I need to buy a house in Iowa?
How much is property tax in Iowa?
Which Iowa city is the cheapest to buy a home?
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