Buying a house in Iowa is an exciting milestone, but the process can take some time. Several factors, like your financial situation, market conditions, and the local economy can affect both how long it takes you to find a home and how much it costs you.
For example, homes in Oskaloosa are hitting the market at $174,900 and selling within 25 days — 18 days faster than the state average! — so you'll need to move quickly if you want to beat out the competition.
However, homes typically stay on the market longer in Spencer, so you'll be able to take your time and potentially find a better deal.
The more you know about the steps to buying a house and Iowa's current real estate trends, the more prepared you'll be to navigate this complicated process as quickly and smoothly as possible.
No matter where you are in your home buying journey, Clever's concierge team can connect you with local real estate pros who will help you purchase your Iowa dream home!
The best part? Clever's service is 100% free! You can meet local lenders and real estate agents with no obligation. If you don't find the perfect match, you can walk away at any time.
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Step 1: Save for a down payment
Your down payment is the initial portion of your home's purchase price that you pay at closing. Your mortgage lender will pay the remaining balance.
Typically, mortgage lenders in Iowa want you to contribute 20% of the purchase price as a down payment. That would be $37,906 for a $189,531 home — the typical home value in Iowa.
However, you have options to lower your down payment amount.
Government backed loans, like VA and FHA loans, allow you to contribute 0% and 3.5% of your home's purchase price respectively. Even conventional loans allow for down payments as low as 3-5% (though the minimum varies by lender).
Minimum Down Payment (%)
Down Payment ($)
Based on typical home values from Zillow (May 2022)
But making a down payment of less than 20% comes with some risks.
First, because you're borrowing more money, you'll have a higher monthly payment and pay more in interest over the life of your loan.
Based on a $189,531 home, the typical home value in Iowa (Zillow, May 2022) with a 5.41% interest rate for a 30-year loan.
Second, you may have to purchase mortgage insurance.
Conventional loans require private mortgage insurance (PMI) until your loan balance reaches 80% of the purchase price. FHA loans, on the other hand, require a mortgage insurance premium (MIP) for the life of your loans.
Mortgage insurance costs around 1% of your mortgage balance annually. However, rates vary based on your down payment and credit score. Typically, your mortgage insurance payment is added to your mortgage payment each month.
VA loans don't charge mortgage insurance. Instead, you'll pay a VA loan funding fee at closing, which can range from 1.4% to 3.6% of the purchase price.
Iowa down payment assistance programs
Are you looking for a down payment assistance program in Iowa?
There are several programs available to first-time and low-income homebuyers in the state of Iowa. Financial aid can include grants or second mortgages with deferred or forgiven payments to help people afford their dream home.
Check out the following options to see if you may be eligible:
The Iowa Finance Authority (IFA) has three DPA programs available for Iowa residents. The FirstHome Plus program offers a grant of $2,500 to first-time homebuyers to cover closing costs or a loan of up to $5,000 that must be paid after the first mortgage is completed.
Eligible borrowers must have a credit score of at least 640 and not exceed the maximum household income limit of their county. Home price limits and income requirements can be found here.
IFA Homes for Iowans
The Homes for Iowans program offers grants or loans for first-time homebuyers and those who haven't owned a home in the last three years. Grants of up to $2,500 or loans up to 5% of the purchase price are available. Loans must be paid back after the first mortgage is complete or when the home is sold or refinanced.
Eligible borrowers must have a credit score of at least 640, not earn more than the maximum household income limit of $139,580, and not purchase a home costing more than $381,000.
IFA Military Homeownership Assistance
The Military Homeownership Assistance program provides a $5,000 grant to eligible service members and veterans. This program can be used in conjunction with the FirstHome and Homes for Iowans programs.
U.S. Department of Housing and Urban Development
Additional programs for Iowa residents can be found on HUD's page here.
Step 2: Get pre-approved for a mortgage
A mortgage pre-approval letter is an offer to lend you up to a certain amount of money to purchase a home. It shows sellers that you are a serious buyer who is financially qualified to make an offer on a home.
Most sellers in Iowa will require pre-approval before showing you their home.
You don't have to decide on one lender right now. In fact, you should compare interest rates and pre-approval amounts from several lenders to make sure you're getting the absolute best terms when you buy your Iowa home.
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Get matched with a lender who can tell you how much house you can afford. To get started, where do you plan on buying?
To get a pre-approved for a mortgage, you'll fill out a mortgage application and provide details about your financial situation. They'll look at the following information to determine your mortgage pre-approval amount:
Lenders need to know that you earn enough to make your mortgage payments each month. Most lenders want your monthly housing costs to be less than 28% of your monthly income.
Lenders also consider your other debts, including credit cards, student loans, auto loans, and personal loans. They use this information to calculate your debt to income ratio (DTI) — or your total debt (including future mortgage) divided by your total income.
While some lenders will approve mortgages for buyers with DTI as high as 43%, it's best to keep your DTI under 36%.
Because of this, you might consider paying off some of your other debts before applying for a mortgage in Iowa.
Mortgage lenders in Iowa want to see that you have enough cash in the bank to cover your down payment and closing costs without completely draining your cash reserves.
While this requirement varies by lender, most want you to keep at least enough to cover two mortgage payments including insurance and taxes.
Step 3: Choose the right location
A house's neighborhood can be just as important as its layout and features. In general, you should consider the following factors when deciding which neighborhood is best for you:
What's your home buying budget?
Once you know your budget (a pre-approval letter will tell you the most you can expect to borrow), you can narrow your search to neighborhoods where homes are selling within your price range.
Also, look at past home value trends. This will give you an idea of how much your home's value could go up over the next few years. You want to choose a neighborhood that's in your budget, but could also lead to a big return when you decide to sell.
To give you an idea of how appreciation could impact what your house is worth in the future, consider these examples from three neighborhoods in Council Bluffs:
Home value appreciation in Council Bluffs
Once you have a list of neighborhoods with homes in your budget, you should evaluate how well each one meets your personal needs and preferences. To finalize your list of target areas, consider factors like:
- School districts
- Your daily commute
- Crime rates
- Restaurants and amenities
- Transportation options
Step 4: Find a great real estate agent in Iowa
Your real estate agent will be your main ally during the home buying process. Besides finding and showing you properties, your agent should be an expert on buying a home in Iowa.
They'll help you make offers, negotiate contracts, and navigate the closing process. Plus, they can recommend other service providers like title companies and inspectors to help you buy your home in Iowa.
Don't rush into choosing an agent. Instead, take the time to research and interview multiple real estate agents who have experience in the neighborhoods you're interested in. you should pay attention to a realtor's:
- Years of experience
- Number of transactions in the last year (the more the better!)
- Experience in your price range
- Overall review score
- Individual reviews and complaints
Ask each of them questions about your target neighborhoods, how they prefer to communicate, and their strategy for helping you find and close on your new home. You should feel comfortable with the agent's knowledge, experience, and process before committing to an agent.
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Step 5: Start house hunting in Iowa
Searching for homes in Iowa is the fun part of the home buying process! You'll get to look at a variety of homes and discover what you really want in a home.
Prioritize your needs vs. wants when buying a home in Iowa
Make a list of everything you want in a home and prioritize them. At the top of the list should be the items that are most important to you. This will help you separate your "must-haves" from your "nice-to-haves."
Your agent can help you understand if your wants are realistic for your budget and favorite neighborhoods or if you need to rethink what you're looking for.
Look at current housing inventory
The timing of your house hunt in Iowa can have a big impact on your number of options. For example, in Iowa, June has historically seen the most homes for sale. Searching in this season could give you more options and a greater likelihood of finding your dream home.
On the other hand, January gives you the fewest choices in Iowa. Historically, there are 40.5%) fewer homes for sale than during Iowa's peak season.
Housing inventory in Iowa by season
New Listings per Month
Based on May 2022 data from Realtor.com
Step 6: Make an offer
Once you find a Iowa house you love, it's time to make an offer. Your real estate agent will help you write a compelling offer that gives you the best shot of convincing the homeowner to sell to you.
Currently, in Iowa, homes stay on the market for 68 days before going under contract. However, every market goes through seasonal changes. During busier months, homes get snatched up more quickly than others.
Historically, Iowa homes sell fastest in May, where the average property is only on the market for 58. If your home search falls around this time, you should be prepared to move quickly and potentially make offers on several homes before yours is accepted.
On the other hand, if you buy in January, you have a bit more time to search. Homes typically stay on the market 18 days longer than Iowa's annual average.
Average time homes spend on market in Iowa
Based on May 2022 data from Realtor.com
What should your offer include?
Your real estate agent can help you decide which of these common options you should include in your offer:
- Seller concessions: You'll have to pay for most of your closing costs out of pocket when you buy a home, but you may be able to ask the seller to cover some of those costs for you. This option may allow you to offer a higher purchase price and essentially include your closing costs in your mortgage.
- Repair credits: If the home is in need of repair, you could ask for credits instead of having the seller make and pay for the repairs. The seller avoids the hassle of waiting for contractors to complete the job, and you get to oversee the repairs in the future to make sure they meet your expectations.
- Inspection contingencies: Most purchase agreements have inspection contingencies that allow you to change your offer (or back out all together) if the inspection turns up major problems. If you have a high degree of certainty about the house's condition (like if the seller can show you a recent inspection report), you can forgo this contingency to give the seller a higher sense of confidence.
- Letter to the seller: Many sellers have a personal attachment to the home. They've lived there for years and want to know the next owner will take care of the property. Writing a letter to the seller can show them how you picture your life in the house and appeal to their sentimental side.
Step 7: Inspections and appraisals
Inspections and appraisals are an opportunity for you to better evaluate the home's condition and value before officially purchasing it. You may have an opportunity after this step to renegotiate the terms of your contract with the seller if something unexpected pops up.
Home inspections in Iowa
Having your Iowa home inspected by a licensed inspector gives you peace of mind about the condition of the property before you commit thousands of dollars to purchase it.
Your inspector should check out the following parts of the property:
- Electrical system
- HVAC system
If the home has a septic system, you should also pay for a septic inspection to make sure it doesn't have any problems that wouldn't be covered in a typical home inspection.
Sellers in Iowa are required to fill out a disclosure form before accepting a buyer's offer. Although most property issues can be found with a general home inspection, doing more specialized tests before closing is highly recommended.
In Iowa, buyers should consider having these inspections completed to make sure a potential house is safe:
Radon testing: If the seller hasn't performed a radon test within the past year, it's wise to get a test as soon as possible. Radon can be dangerous in high levels, and it can easily slip into a home undetected.
Termite inspection: Sellers in Iowa are required by law to disclose any known termite and pest issues, but early infestations can often go unnoticed. Consider having a professional pest inspection to get rid of any unwanted critters and prevent future infestations.
Appraisals determine the value of the property. If you're using a mortgage to buy your new home, your lender will order an appraisal to make sure the home is worth the money that it's loaning you.
Step 8: Close on your new home!
Once you finish your inspections and your lender approves your financing, you'll be ready for closing! Closing is the process of finalizing your mortgage and transferring ownership of the property.
To become a legal homeowner in Iowa, you'll have to complete two final tasks. On closing day, you'll meet at the title company to finalize your paperwork and settle the closing costs.
Prepare to review and sign several important documents that will transfer the title to your name. If you don't fully understand something, be sure to ask for clarification before signing.
Some common documents you'll need to sign include:
- The finalized loan application
- The deed
- The mortgage promissory note
After signing the paperwork, you’ll have to pay your closing costs. The title company makes this simple by collecting the total amount you owe, and then taking care of appropriately distributing these funds.
If you want to know exactly where your money is going, homebuyer closing costs can typically be divided into four categories:
- Lender fees: Fees paid to your mortgage lender for originating and underwriting your loan. Additional expenses related to your loan may also apply here.
- Title and escrow charges: Fees paid to the title company for facilitating the closing, conducting title searches, and providing title insurance.
- Prepaid costs: Ongoing fees associated with homeownership. Some lenders require new homebuyers to pay for certain expenses up front, such as property taxes and homeowners insurance.
- Other closing costs: Miscellaneous costs that vary according to each buyer's needs. Common expenses in this category can cover pest inspection fees, disaster certification fees, and real estate attorney fees.
Buyers in Iowa typically pay 3-5% of the purchase price in closing costs. For a $189,500 home — the typical home value in Iowa — that's between $5,685 and $9,475!
» MORE: Closing costs for buyers in Iowa
Frequently asked questions
- Save for down payment
- Get pre-approved for a mortgage
- Choose your preferred Iowa neighborhoods
- Partner with the right real estate agent in Iowa
- Go house hunting
- Make a strong offer
- Inspections and appraisals
- Do a final walkthrough and close
Yes! The Iowa Finance Authority's FirstHome Program is offered to first-time buyers, veterans, and buyers in target counties. The program offers low interest rates that don't change based on your credit score. For those earning less than 80% of their area's median income, reduced mortgage insurance coverage and down payment assistance is also available.
Eligible participants must have a credit score of at least 640 and stay within the household income and home purchase price limits set for their county. Borrowers also can't exceed a debt-to-income ratio of 45%.