How to Buy a House in Iowa: 6 Steps

Purchasing a house is a major financial decision, requiring careful consideration of various factors. In Iowa, the average home value is $223,348, which is lower than the national average of $362,481. This difference may influence your decision-making process when considering a home purchase in the state.

Understanding down payment assistance programs, mortgage types and state-specific regulations can ensure a smooth journey toward homeownership in the Hawkeye State. MoneyGeek compiled the essential pointers to help you navigate the homebuying process in Iowa, from saving the down payment and choosing the ideal location to finding the best financing option for your particular needs and credit history.

According to the U.S. Census Bureau, the homeowner vacancy rate in Iowa in the second quarter of 2024 was 0.7%. The homeowner vacancy rate measures the percentage of homeowner-occupied units that are vacant and available for sale. It provides insight into the housing market's supply and demand dynamics.

A stable homeowner vacancy rate is considered to be 2%, which allows homebuyers some choice and flexibility. The current rate of 0.7% in Iowa indicates that there is not enough inventory on the market to satisfy homebuyer demand. This tight market condition may lead to increased competition among buyers, potentially driving up home prices and making it more challenging to find available properties. Homebuyers in Iowa may need to act quickly when they find a suitable property and be prepared for possible bidding wars.

Before buying a house in Iowa, examine your financial and credit history closely. A strong financial profile improves your chances of getting approved when applying for a mortgage. Lenders assess your credit score, debt-to-income ratio and overall financial health to determine your eligibility and interest rates. Ensuring your finances are in order can make the home buying process smoother and more successful.

Your credit score significantly affects the mortgage loans and interest rates you qualify for. A higher score increases your chances of securing a favorable rate. In Iowa, the average credit score in the third quarter of 2023 was 730, according to Experian. This data highlights the importance of maintaining a good credit score.

If your credit score is considered 'poor' on the FICO scale, which is below 580, buying a house is still possible, but getting approved for a mortgage may prove challenging. Check the table below to see which mortgage type is ideal for you based on the minimum credit score requirements.

Source: Experian

Your debt-to-income ratio (DTI) is a key figure that lenders examine to determine how much of your monthly income goes toward debt payments. This helps them assess how much mortgage debt you can responsibly take on. In the third quarter of 2023, the average mortgage debt in Iowa was $153,682, according to Experian. This figure highlights the additional financial responsibility that comes with homeownership in Iowa.

Monthly debt payments factored into your DTI include mortgages, credit cards, student loans and other installment loans. Use our debt-to-income ratio calculator below to see your front-end DTI, back-end DTI and total monthly debt payments. The front-end DTI focuses on housing-related costs, while the back-end DTI considers all your monthly debt obligations.

Buying a house beyond your financial means can lead to significant financial stress. It's wise to adhere to the 28% rule, which advises that your monthly mortgage payment should not exceed 28% of your gross monthly income. This guideline helps ensure that you're not overextending yourself financially and can comfortably manage your other expenses.

According to the U.S. Bureau of Labor Statistics, the median annual income in Iowa as of April 2024 is $46,460. This translates to a gross monthly income of $3,872 before taxes. Applying the 28% rule, you should aim to spend no more than $1,084 on your monthly mortgage payment. This calculation helps you maintain financial stability while pursuing homeownership.

Use our mortgage calculator below to get a ballpark figure of your monthly mortgage payment in Iowa.

A down payment is the initial amount you pay upfront when purchasing a house, typically expressed as a percentage of the home's purchase price. The standard down payment is often 20%, which can pose a challenge for many homebuyers. In Iowa, the average home value is $223,348, making a 20% down payment approximately $44,670. For homes above the average value, such as those priced at $260,000, the 20% down payment would be $52,000.

Fortunately, saving up for a 20% down payment is not necessary for all mortgage types. Many loans allow you to put down less money. Government-backed loans, such as VA loans, require no down payment, while FHA loans require only a 3.5% down payment.

If you decide to put down less than 20%, your lender may require you to take out private mortgage insurance. You can use our PMI calculator to estimate your monthly premium based on your credit score and down payment.

Iowa offers several down payment assistance programs to help make homeownership attainable for many residents. These programs aim to reduce the financial barrier of a down payment, which can be a significant hurdle for potential homebuyers. The Iowa Finance Authority is a prominent source for these programs, providing valuable resources and guidance.

Check out the table below for the available down payment assistance programs in Iowa offered by the Iowa Finance Authority.

Choosing the right location in Iowa involves several considerations. Start by evaluating the average house price in potential areas, ensuring it fits within your budget. Proximity to family, friends and work or school is also crucial. Consider access to public transportation, parks, restaurants and shopping centers, which can enhance your quality of life.

The cost of living significantly impacts your decision when choosing a new home. According to the Missouri Economic Research and Information Center (MERIC), Iowa's cost of living index in the first quarter of 2024 is 90.1, which is below the national average of 100. When evaluating potential locations, consider essential expenses such as:

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

Check out the table below to see some cities in Iowa and their average home values based on recent data. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Working with a real estate agent can significantly speed up your house hunt in Iowa. They provide the advice you need, assist with paperwork and offer an expanded list of property options you might not access alone. Additionally, agents can recommend other service providers like title companies and inspectors to help you buy your home in Iowa.

When finding a real estate agent, make sure to do your due diligence and interview agents who have experience in the neighborhoods you're interested in. Consider the following tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

Navigating the homebuying process means finding a mortgage that fits your budget. In Iowa, you can choose from conventional loans, jumbo loans, FHA loans, VA loans and USDA loans. Terms range from 10-year to 30-year options. A fixed-rate mortgage or an adjustable-rate mortgage (ARM) offers different benefits. Selecting the right financing option not only boosts your approval odds but also saves you money over time.

Interest rates on a mortgage can change daily due to factors such as the type of mortgage, the lender and the overall economy. While these rates can fluctuate, understanding the difference between the interest rate and the annual percentage rate (APR) is crucial. The APR provides a more comprehensive view of the true cost of borrowing by including not just the interest rate but also additional fees and costs associated with the loan.

As of December 2024, the APR for a 30-year fixed conforming loan in Iowa is 6.30%, while the APR for a 30-year fixed rate FHA loan is 8.27%. To get the most accurate and current information, please refer to the table below for mortgage rates in Iowa by mortgage type.

Before purchasing a home in Iowa, obtaining a mortgage pre-approval can streamline your buying process. Pre-approval involves a lender reviewing your financial information to determine how much they might lend you. This step provides clarity on your budget and strengthens your position with sellers. Lenders issue a pre-approval letter, which can make your offer more appealing. Typically, this letter remains valid for 60 to 90 days, ensuring you have ample time to find the right property.

To apply for a mortgage pre-approval, you'll need to provide several documents. These include:

• Proof of income, such as pay stubs or tax returns
• Credit history reports
• Bank statements and details of other assets
• Identification documents, like a driver's license
• Details of any outstanding debts

Home inspections are a recommended step in the homebuying process in Iowa. Inspectors typically examine key areas such as the roof, foundation, plumbing, electrical systems and HVAC. The inspection report provides a summary of findings, detailed notes on each area inspected and recommendations for repairs or further evaluation. This information can help you understand the property's condition and make an informed decision.

For example, an inspection might reveal major issues like a damaged roof or faulty wiring. These findings can lower the home's appraisal value, affecting your financing options. If the problems are extensive, you might decide to rescind your offer. Understanding the potential impact of an inspection can help you navigate the homebuying process more confidently.

Iowa does not impose state-specific standards for home inspections. Despite this, many home inspectors in the state adhere to the standards of practice established by the American Society of Home Inspectors (ASHI) or the International Association of Certified Home Inspectors (InterNACHI). This adherence provides a level of consistency and reliability, even in the absence of state regulations.

If you're looking for a home inspector in Iowa, ensure they are licensed. It's wise to check what other clients have said by reading online reviews and asking for references. These steps can help you gauge the inspector's credibility and reliability. Although there is no search tool available to verify licensed home inspectors in Iowa, these tips can guide you in making an informed decision.

Home appraisals play a crucial role in the homebuying process in Iowa. They provide an objective assessment of a property's fair market value, which is essential for both buyers and lenders. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median cost of a home appraisal in 2023 was $500. This cost is a necessary step to ensure that the price of the home aligns with its actual worth in the market.

It's important to understand the difference between a home appraisal and a home inspection. While both inspections and appraisals are critical in the homebuying process, they serve distinct purposes. A home appraisal evaluates the property's value, which lenders require to confirm that the loan amount reflects the home's worth. On the other hand, a home inspection focuses on identifying any structural or mechanical issues within the home. Lenders prioritize appraisals to mitigate the risk of lending more money than the property is worth.

In Iowa, closing is the final step in buying a house, marking the official transfer of ownership and the moment you receive the keys. Three days before this meeting, your lender will provide a closing disclosure document. This document details your loan terms, projected monthly payments and closing costs. It's wise to plan a final walk-through with your real estate agent near the closing day to ensure the property is in the expected condition.

On closing day, you'll need to review and complete several documents to finalize your home purchase. These documents ensure that all legal and financial aspects of the transaction are in order.

• Final loan application: This document confirms the terms and conditions of your loan before you sign the mortgage agreement. It ensures that all information is accurate and up-to-date, reflecting your financial commitment.
• Deed transfer: The deed transfer is a legal document that officially transfers ownership of the property from the seller to you. Signing this document makes you the legal owner of the home.
• Promissory mortgage note: This note is your written promise to repay the mortgage loan under the agreed terms. It outlines the repayment schedule, interest rate and any other relevant conditions.
• Homeowners insurance: Homeowners insurance in Iowa provides protection for your new home against potential damages or losses. This coverage is essential for safeguarding your investment in the property.

Closing costs are fees paid at the end of a real estate transaction. In Iowa, the average closing costs amount to $2,758, according to NAR. These costs include various fees that cover different aspects of the home-buying process:

• Appraisal fee: This fee covers the cost of having a professional appraiser evaluate the property's value.
• Title search and insurance fee: This fee ensures that the property's title is clear of any liens or claims.
• Escrow deposit: This deposit is held by a third party to cover future property taxes and insurance premiums.
• Prepaid costs: These are upfront payments for property taxes and homeowners insurance.
• Other closing costs: This category includes various additional fees, such as attorney fees and recording fees.

If you are a first-time homebuyer, learning about the different first-time homebuyer programs in Iowa can also help you achieve homeownership faster.

Buying a house in Iowa is a long-term financial commitment. We answered some frequently asked questions to kickstart your homebuyer journey.