This guide teaches first-time homebuyers about conditions affecting mortgage rates in Iowa, how to access credit scores for free and where to turn for financial assistance with down payments and closing costs. There's also information on refinancing, including what to expect and deciding when you're ready.
Understanding Iowa Mortgage Rates
Interest rates in Iowa fluctuate with economic conditions, including employment, average incomes and housing demand. However, the key factor in the rate you'll get on a mortgage will hinge mostly on your credit score. As part of your preparations in applying for a new home loan, pull your credit reports at least once a year to check your scores and correct any mistakes.
You can get a free copy of your complete credit report once a year from the three major credit reporting companies: Experian, TransUnion and Equifax. These scores are a major factor Iowa lenders use in determining their offer to you on a mortgage.
Learn more here about factors that drive mortgage rates
First-Timer? Get Homebuying Help in Iowa
The Iowa Finance Authority manages loan programs to meet various needs of homebuyers in the state. It offers fixed-interest mortgages, special loans and even grants to help cover down payments and closing costs.
Additionally, Iowa residents can lower their federal income tax liability by up to $2,000 a year for the life of their mortgage up to 30 years through the Take Credit mortgage credit certificate program administered by the Iowa Finance Authority. The program is available for new home buyers, veterans or buyers in targeted areas through a network of lenders across the state.
Financial Assistance for First-Time Buyers in Iowa
First-time homebuyers in Iowa may find their greatest challenge is saving for a sufficient down payment to satisfy the lender. The median home value in Iowa is $124,700. The FHA maintains government-backed lending programs in Iowa allowing first-time homebuyers to finance 96.5 percent of the purchase price. Because many Iowa cities and towns offer supplemental loan and grant programs for down payment assistance, first-time buyers may be able to finance their purchase with zero down. Dubuque, Oskaloosa, Cedar Rapids and Waterloo are some of the major Iowa cities offering down payment assistance to first-time homebuyers.
Here's a list of resources for first-time homebuyers living in Iowa:
Find a Housing Counselor in Iowa
Understanding Home Affordability in Iowa
Iowa has seen some affordability issues but overall, continues to fare better than the nation. The National Housing Conference in 2014 determined roughly 10 percent of Iowa households spend at least half of their income on housing, compared to 16 percent nationally, although the median household income in Iowa was $50,712, just below the median U.S. household income of $51,015.
The University of Iowa's housing affordability report also found homeownership has increased in the state to 73.2 percent in 2010 from 70 percent in 1990, and the cost burden of housing relative to household income grew at a slower pace than the U.S. average. The U.S. rate of household cost-burden jumped to 35.9 percent in 2010 from 26 percent through 1990 and 2000, but Iowa's rose more modestly to 25.5 percent from 18.7 percent.
Iowa's economy and local housing demand also affect real estate prices and mortgage interest rates. Iowa's unemployment rate of 4.1 percent in July was lower than the country's 4.9 percent, while the state's median income of $53,712 in 2014 just edged out the national median of $53,657.
How Iowa Mortgage Rates and Home Prices Affect Monthly Payments
|Metro Area||Estimated Monthly Mortgage Payment*||Q1 2016 (Change from Previous Year)||2015 Median Home Price||2014||2013|
|Cedar Rapids||$684||$146,000 (-6.90%)||$161,900||$151,600||$155,800|
|Davenport-Moline-Rock Island||$535||$114,200 (+4.40%)||$121,600||$116,000||$114,600|
|Des Moines||$797||$170,000 (+3.50%)||$181,300||$171,500||$170,400|
|Waterloo/Cedar Falls||$559||$119,300 (+3.50%)||$120,200||$126,700||$125,500|
Source: National Association of Realtors Q1 2016 Metropolitan Median Area Prices and Affordability report.
*Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q1 2016 and a 30-year fixed mortgage with today's rates.
Figure Out How Much You Can Borrow in Iowa
Lending limits on FHA mortgage products vary by county, but they're all capped at $271,050 for a single-family FHA loan in Iowa. Your income-to-debt ratio will be key in determining how much you can borrow because lenders use this ratio as a benchmark for how much you can afford. For first-time buyers, loans in Iowa are typically based on an income-to-debt ratio of 30 percent, meaning your housing costs can be no more than 30 percent of your gross monthly income. Some lenders hold the ratio to 28 percent. In practical terms, you don't want the ratio too high because your income must also be budgeted between all other needs. From the lender's perspective, borrowers with a too-high ratio are seen as a greater risk, increasing the likelihood of defaulting on the mortgage.
Here's a listing by locality of FHA and conventional loan limits in Iowa:
Buying a Home in Iowa: What the Experts Know
Kris Neyen is the rehabilitation programs supervisor for the Homebuyer Assistance Program of Dubuque. Neyen has worked in city government for 26 years.
What do first-time homebuyers need to do to start the mortgage lending process?
Usually we ask them to go to a mortgage lender to see if they can even get the loan. We help with a down payment to bring down the cost of the first mortgage. We really encourage people to take our home workshop, which is $25, and we do have scholarships for low-income people to cover that.
We can approve down payment help up to $25,000 to bring down a first mortgage in a target neighborhood. In other locations, it's capped at $5,000.
Sign up for a homebuyer education class, especially if they're a first-timer. We have several HUD-certified places in town to take a class. They have housing counselors to help navigate the funding options available. Then speak with a lender to speak about how much funding they might be eligible for. We also have income eligibility guidelines for down payment assistance (up to $5,000 in aid). We want to revitalize certain urban areas so the house has to be in a certain area to qualify for our program. That's true of a lot of Iowan cities that offer these down payment programs.
Best advice for people with credit scores on the fence? What can they do to improve their credit-worthiness to qualify for financing?
One of the people in our extension office talks about credit scoring in our workshop. You can also go to a consumer credit counselor. If your score is close to 640-650, it might take three months to get your credit score up there in the approval range if you just need to pay down some debts.
Talk to people who specialize in credit counseling. It's good to get one-on-one counseling to work with your unique situation. You're probably going to be better off working with someone who can tailor a strategy to suit your specific needs, rather than trying on your own.
Is there adequate inventory in Iowa for first-time homebuyers? Are there enough houses within the price range of your average first-time homebuyer?
The Community Housing Initiative purchases and rehabs houses close to brand-new in our target neighborhood. Then our goal is to get people who are under 80 percent median income into a house. We try to work with people to keep their mortgage payment close to what their rent payment was. If people don't care where they live, there's ample housing. If you're particular about a neighborhood, there may be a shortage of houses that would suit first-time buyers
Our housing market is very stable, but it is an aging stock. We require a housing quality inspection to make sure we're not putting people in houses that aren't affordable because of repairs and maintenance. Checking for chipping lead paint, things like that. That's the concern in a lot of older cities. We've been fortunate also to have some new construction.
Remember Those Iowa Closing Costs
Before the seller hands over the keys to your home, you'll have to pay closing costs. These are fees charged by just about everyone involved in the sale: banks, attorneys and home appraisers are among them. Under some circumstances you may need title research completed on the house to be sure the deed is clean and there are no judgments, liens or other financial demands hanging over the property by creditors. The title agent will also send a bill.
Closing costs in Iowa typically run about 1 percent of the loan amount, so you'd expect about $2,000 in closing costs on a $200,000 mortgage.
More details on how lenders set closing costs and what types of fees you can expect can be found here. Here's a breakdown of average closing costs in Iowa:
Average Closing Costs in the Hawkeye State
Source: Bankrate's 2015 survey of closing costs.
Refinancing a Mortgage in Iowa
Most Iowa mortgage lenders also offer refinancing products to qualified borrowers. A lower interest rate will shave thousands of dollars off the loan, putting more money into your pocket every month.
The Home Affordable Refinance Program (HARP) offers refinancing programs in Iowa with the promise of a 48-hour approval process. Eligibility for HARP in Iowa is limited to owners of single-family homes or condos. Advantages of the program include a lower debt-to-income ratio than would be required from conventional lenders, plus another property appraisal is usually not required on the house being refinanced.
For a closer look at mortgage refinancing check out this MoneyGeek guide.
Other Iowa Mortgage Resources
Loans for first-time homebuyers through the Iowa Finance Authority. Outlines current eligibility requirements for the FirstHome and Homes for Iowans programs.
Federal programs and information on homebuying from the U.S. Department of Housing and Urban Development.
Mortgage products backed by the Federal Housing Administration available in Iowa.
Financial aid for individuals looking to buy a home in this Iowa city. Down payment loans of up to $5,000 at 0% interest are available as well as loan programs for specific neighborhoods.
Low-income first-time homebuyers looking at properties in this Iowa city may be eligible for up to $5,000 in the form of a five-year forgivable loan to assist with a down payment.
Down payment assistance forgivable after five years from $1,000 to $5,000 for income-eligible residents of this Iowa city.
Zero percent loans for up to $3,500 to cover down payments and/or closing costs on a new home to city residents.
Down payment grants of up to $20,000 for first-time homebuyers in Council Bluffs of a newly constructed single-family home
Rundown of financing options and free money for homebuyers in Iowa who have not bought their own house in the last three years.
Advice and resources from the non-profit Iowa Legal Aid.