Iowa First-Time Home Buying Assistance Programs for 2024

Iowa First-Time Home Buying Guide

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    By Kenny Zhu

    (Last Updated – 03/2024)

    Homes in the Hawkeye State are relatively affordable, with an average value of $205,988 vs. the national figure of $342,941, according to Zillow.

    However, that doesn’t mean it’s necessarily easy to buy a home for the first time in Iowa. If you could use a helping hand with down payment, mortgage, and closing costs, you may want to look into what the Iowa Finance Authority (IFA) and others offer. A number of homebuyer assistance programs exist that can help put homebuying within reach.

    Who Is Considered a First-Time Homebuyer in Iowa?

    The IFA defines a first-time homebuyer as someone who has not owned a primary residence in the past three years. This conforms with the federal definition cited by the U.S. Department of Housing and Urban Development (HUD).

    Keep in mind that there are exceptions for veterans, as well as those seeking to purchase a home in targeted areas under the IFA’s FirstHome program.

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    5 Iowa Programs for First-Time Homebuyers

    The IFA offers two major homebuyer assistance programs geared toward helping both repeat and first-time homebuyers. Benefits are offered in the form of competitive mortgage rates, grants, and deferred loans.

    You can use the IFA’s eligibility checker to see whether you qualify for benefits.

    1. FirstHome Program

    The FirstHome Program offers below-market interest rates on mortgages that may require just 3% down and may include reduced mortgage insurance.

    The mortgage can be paired with a FirstHome grant or second mortgage.

    While eligibility for FirstHome program benefits are generally limited to first-time homebuyers, active-duty military personnel and veterans may be able to skip this requirement, as well as buyers of homes in targeted disadvantaged areas.

    •   Household income limit: Generally should not exceed $132,710, but the limit varies by county.

    •   Home purchase price limit: $481,000 for non-targeted areas; $588,000 in targeted areas.

    •   Primary residence: Buyer must intend to occupy home as primary residence within 60 days of closing.

    •   Minimum FICO® credit score: 640

    •   Debt-to-income (DTI) ratio: cannot exceed 50%

    A homebuyer education course is required for borrowers taking out conventional loans, which will help participants understand the whole buying process and types of mortgage loans.

    2. Homes for Iowans

    First-time and repeat homebuyers who obtain a mortgage under the Homes for Iowans program will face lower mortgage fees and credit score does not impact the interest rate.

    The program has more liberal home price and household income limits than FirstHome.

    •   Household income limit: Generally should not exceed $161,650

    •   Home purchase price limit: $588,000

    •   Primary residence: Buyer must intend to occupy home as primary residence within 60 days of closing.

    •   Minimum FICO® credit score: 640 (with options for those without credit scores)

    •   Debt-to-income (DTI) ratio: cannot exceed 50%

    3. Down Payment and Closing Costs Programs

    The IFA’s two mortgage programs can be married with down payment and closing costs programs . Specifically, borrowers may qualify for either a $2,500 grant or a loan of up to 5% of the purchase price (repayable if the home is sold or refinanced, or the first mortgage is paid off) to help with a down payment or closing costs.

    Eligibility requirements for both the FirstHome and Homes for Iowans down payment assistance programs include income and home purchase price limits.

    Your lender will help you qualify for the grant or loan as part of your application process.

    4. Military Down Payment Program

    This program offers a $5,000 grant to eligible homebuyers to cover a down payment and closing costs. The Military Homeownership Assistance is geared toward veterans, active-duty service members, and surviving spouses using a FirstHome or Homes for Iowans mortgage.

    The program is subject to funding availability, so it’s a good idea to ask your mortgage lender to check whether the funding status of either program has changed.

    5. Local Assistance

    City and county programs also exist that boost homeownership. Check the list kept by HUD.

    How to Apply to Iowa Programs for First-Time Homebuyers

    Above, there are links to the programs mentioned so you can learn more about eligibility. Regardless of which IFA program you pick, you’ll need to make sure you contact an approved mortgage lender to start your loan application.

    Once your lender has verified that you meet the minimum program requirements, you may be asked to complete a homebuyer education course. Homebuyer education is required for all conventional mortgage loans and must be completed before closing.

    Your mortgage lender will guide you through the necessary steps to take until you’re ready to close.

    Recommended: Guide to First-Time Home Buying

    Federal Programs for First-Time Homebuyers

    Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.

    The mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.

    Federal Housing Administration (FHA) Loans

    The FHA, which is part of the US Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the FHA loan program. Here are details on this program:

    •   Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers, who typically need FICO® credit scores of 580 or higher. Those with low credit scores (between 500 and 579) must put at least 10% down.

    •   Lenders will look at your debt-to-income ratio (DTI, your monthly debt payments compared with your monthly gross income). FHA loans allow a DTI ratio of up to 57% in some cases, vs. a typical 45% to 50% maximum for a conventional loan.

    •   Gift money for the down payment is allowed from some donors and will be documented in a gift letter for the mortgage.

    •   FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years.

    ◦   Example: For a $300,000 mortgage balance, upfront MIP would be around $5,250 and monthly MIP, at a rate of 0.55%, would be around $137.

    You can learn more about these loans, including FHA loans for refinance and rehab of properties, by reading up on FHA requirements, loan limits, and rates.

    💡 Quick Tip: Backed by the Federal Housing Administration (FHA), FHA loans provide those with a fair credit score the opportunity to buy a home. They’re a great option for first-time homebuyers.1

    Freddie Mac Home Possible Mortgages

    Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.

    The Home Possible mortgage is for buyers who have a credit score of at least 660.

    Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.

    Fannie Mae HomeReady Mortgages

    Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.

    For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site .

    Fannie Mae Standard 97 LTV Loan

    The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.

    Department of Veterans Affairs (VA) Loans

    Active-duty members of the military, veterans, and eligible family members may apply for loans backed by the Department of Veterans Affairs. VA loans, which can be used to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. Most borrowers pay a one-time funding fee that can be rolled into the mortgage.

    Another benefit of VA loans is that they do not require private mortgage insurance (PMI) for borrowers who make a down payment of less than 20%. And they have more flexible credit score requirements. In some cases, even those who have previously been in foreclosure or bankruptcy can qualify.

    Borrowers applying for a VA loan will need a Certificate of Eligibility from the VA so make sure to review a guide to qualifying for a VA loan as a first step in the process.

    Native American Veteran Direct Loans (NADLs)

    Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. The VA requires no mortgage insurance, but it does charge a funding fee.

    US Department of Agriculture (USDA) Loans

    No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers pay an upfront guarantee fee and an annual fee that serves as mortgage insurance.

    The USDA also directly issues loans to low- and very low-income people. For loan basics and income and property eligibility, head to this USDA website .

    HUD Good Neighbor Next Door Program

    Police officers, firefighters, emergency medical technicians, and teachers can get help qualifying for mortgages in the areas they serve with the HUD Good Neighbor Next Door Program . Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.

    Iowa First-Time Homebuyer Stats for 2024

    Here’s a snapshot of Iowa homebuyers:

    •   Median home value: $205,988

    •   Change year over year: 3.3%

    •   3% down payment: $6,179.64

    •   20% down payment: $41,197.60

    •   Average credit score (vs. 714 nationwide): 711

    Additional Financing Tips for First-Time Homebuyers

    In addition to federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:

    •  Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may cut into your retirement savings

    •  Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.

    •  401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 or even 25 years to repay.

    •  State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.

    •  The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas in Iowa may qualify to claim a portion of their mortgage interest as a tax credit, up to 50% of the interest paid at a $2,000 cap. However, funding is not available as of this writing. It can be wise to check if the Iowa mortgage credit certificate gets additional funding when you are ready to purchase a property.

    •  Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.

    •  Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.

    The Takeaway

    First-time homebuyers in Iowa may qualify for down payment, mortgage, and closing costs assistance through a state or local program. Other first-time buyers can look into the array of available mortgages as well to find the right fit.

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    Should I take first-time homebuyer classes?

    Yes! Good information is key to a successful home-buying experience for anyone, but especially for newcomers. First-time homebuyer classes can help. Indeed they are required for some government-sponsored loan programs.

    Do first-time homebuyers with bad credit qualify for homeownership assistance?

    Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores. And often, interest rates and other loan pricing are competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications.

    Is there a first-time homebuyer tax credit in Iowa?

    Technically, Iowa offers a first-time homebuyer tax credit through its mortgage credit certificate program, though its availability can depend on state funding. At the time of this writing, there was no available funding for the tax credit. The credits are usually issued on a first-come, first-served basis.

    Is there a first-time veteran homebuyer assistance program in Iowa?

    Yes, the IFA offers eligible service members and veterans a grant of up to $5,000 toward a down payment or closing costs on qualified homes. This program is also contingent on funding availability, so make sure to check with your mortgage lender when applying for a home loan.

    What credit score do I need for first-time homebuyer assistance in Iowa?

    Both the IFA’s FirstHome and Homes for Iowans programs list a minimum credit score of 640 to be eligible for assistance.

    What is the average age of first-time homebuyers in Iowa?

    While information on the average age of an Iowa homebuyer can be hard to find, the national average is currently 35.

    Photo credit: iStock/MelindaRose

    *SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

    †Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

    ¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

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