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Iowa first-time home buyer programs

Purchasing your first home in the Hawkeye State can be intimidating and expensive. It will likely include financial situations and conversations you’ve never encountered before. Luckily, the federal and Iowa state governments have created first-time homebuyer programs just for borrowers like you. Even if you don’t have much to put toward a down payment or can’t afford the interest rates your friends and colleagues pay, these loans and mortgage programs can make home ownership more accessible. And if you need help assessing your options, the SmartAsset advisor matching tool can help you find Iowa-based professionals to work out the details for you.

Federal First-Time Homebuyer Programs

FHA Loans

Pros – Low down payment requirements
– Don’t need a high credit score for approval
Cons – Borrowers with low credit score may need to make higher down payments
Eligibility – FICO® credit score of 500 or higher
– Down payment of at least 3.5%
Best For – Borrowers that don’t have great credit or adequate savings for a down payment

The Federal Housing Administration of the U.S. federal government backs FHA loans. Rather than the usual 20%, borrowers only need to pay a 3.5% down payment at the time of purchase. It’s actually one of the easiest programs to qualify for.

In addition to that affordable upfront cost, FHA loans are also available to almost all potential borrowers. You need a credit score of 580 to receive this perk in its full glory, but so long as your credit score is at least 500, you can still qualify. You’ll need to make a down payment closer to 10%, but that’s still half the usual amount!

VA Loans

Pros – Potential for no down payment
– No private mortgage insurance requirement
– Lower closing costs
Cons – Must pay VA funding fee
– Application process can be drawn out
Eligibility – FICO® credit score of 620 or higher
– Current or former military member, spouse, or other beneficiary
Best For – Veterans without the necessary income or savings to afford a down payment

The Department of Veterans Affairs (VA) insures VA loans acquired through third-party lenders. Since many veterans don’t earn enough monthly income or have sufficient savings to afford a down payment, VA loans do not necessitate you pay one.

Since the government will back part of your risk, you also won’t have to get private mortgage insurance (PMI). VA loan closing costs are also usually lower than they are with conventional and other mortgages, leaving even more money in your wallet.

To qualify for a VA loan, veterans generally need a credit score of at least 620. For 2019, you also need to contribute 1.50-2.15% of your home’s value into the VA fund. The exact amount will depend on whether you choose to pay a down payment or not.

USDA Loans

Pros – Potential for no down payment
– Don’t need a high credit score for approval
Cons – Not available to those that qualify for a conventional mortgage
– Not available in some areas
Eligibility – Must earn within 115% of the adjusted U.S. median income in most cases
– Home must be in an eligible area
Best For – Low- to mid-income borrowers looking to live in a rural or semi-rural area

The United States Department of Agriculture (USDA) sponsors “Section 502 Single Family Housing Guaranteed Loan Program.” Better known as USDA mortgages, they attract new homebuyers to rural and semi-rural places throughout the country. So long as you have a decent credit history, they completely eliminate the need for a down payment.

To qualify for most of these loans, you must earn less than 115% of the U.S. median income. You also have to prove that you have been unable to secure a conventional mortgage. If your score falls a bit lower, you won’t be left high and dry. You’ll just have to pay a down payment, typically around 10% of your home’s value. But a credit score of at least 680 usually gets you better terms. At half the standard down payment size, it’s still a big improvement from most homebuyer’s experience.

Good Neighbor Next Door Program

Pros – 50% discount on home price
Cons – Not available in most areas or for most people
Eligibility – Home must be your primary residence for at least three years
– Police officer, firefighter, emergency medical technician or teacher
Best For – Public servants without adequate savings for a home

The U.S. Department of Housing and Urban Development’s (HUD) Good Neighbor Next Door Program is more of a discount than a loan. It rewards teachers and emergency workers with a 50% discount on the purchase price of their first home. HUD encourages participants to use a conventional, VA or FHA mortgage to finance the rest of the home.

Homes must be located within a HUD-designated  “revitalization area” to qualify. Perhaps most importantly, you also must agree to stay in the home for at least three years after the purchase. So long as you meet these terms, you can sell the home and hold onto any equity and profit once the three years are up.

Fannie Mae/Freddie Mac

Pros – Low down payment requirement
– Don’t need any credit history for approval
– Multiple loan types available
Cons – Higher interest rates than other federal programs
Eligibility – Must earn within location-specific income requirements
Best For – Borrowers that needs a low down payment option and don’t qualify for other federal programs.

Most of these programs are a partnership between federal organizations and third-party lenders. Freddie Mac and Fannie Mae, on the other hand, are government-sponsored mortgage providers. They have a few first-time homebuyers programs.

The HomeReady® loan from Fannie Mae requires down payments as low as 3%. You’ll need a credit score of at least 620 and must earn an income at or near the U.S. median to qualify. With a HomeReady loan, you must also have private mortgage insurance at the time of purchase. Luckily, once you’ve accrued 20% equity in your new home, you can cancel it.

Freddie Mac offers the Home Possible® 95% LTV. In this case, LTV stands for loan-to-value, meaning minimum down payments are 5% and 3%, respectively. You can also choose from either a 15 or 30-year mortgage. Moreover, it also has the cancelable private mortgage insurance that comes with a HomeReady loan. Perhaps best of all, you won’t need a strong (or any) credit history to qualify.

NADL

Pros – No down payment requirement
– No private mortgage insurance requirement
– Don’t need a high credit score for approval
– Lower closing costs
Cons – Not available in most areas or for most people
Eligibility – Home must be located in an eligible territory
– Current or former military member of Native American descent, their spouse, or other beneficiary
Best For – Native American veterans without the necessary income or savings to afford a down payment

Similar to VA loans, Native American Direct Loans (NADL) are designed specifically for Native American veterans and their spouses. An NADL loan comes with VA benefits like  lowered closing costs and elimination of the private mortgage insurance requirement. They can also cover up to 100% of your home’s value.

What sets NADLs apart is the set interest rate, which is currently 4.75% but subject to change based on market and Prime Rate fluctuations. To make things even better, you don’t need a strong credit history to qualify for an NADL. Keep in mind that the home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts.

Iowa First-Time Homebuyer Programs

IFA FirstHome Program

Iowa first-time home buyer programs

Pros – Lower interest rates
– No down payment requirement
– No private mortgage insurance requirement
– Don’t need a high credit score for approval
– Potential to combine with Down Payment Assistance to save even more
Cons – Must meet lender and IFA requirements
– Cannot be combined with an IFA Mortgage Credit Certificate
Eligibility – FICO® credit score of 640 or higher
– Debt-to-income ratios of 45% or lower
– Income and purchase price limits dependent on household size and home location
Best For – Low- and mid-income Iowans that don’t have adequate savings for a down payment

The Iowa Finance Authority (IFA) sponsors several homebuyer programs for first-time buyers, which IFA defines as someone who hasn’t owned their primary residence in the last three years. The FirstHome program provides 30-year fixed rate mortgages financed by either conventional or federal government sources. IFA rates are typically lower than the market rate.

Down payment and mortgage insurance requirements are determined by loan type. Some federally-backed loans don’t require any down payment or insurance at all. Conventional loans have down payments as little as 3% and include reduced or no mortgage insurance fees. Borrowers must earn less than location-specific limits and demonstrate an ability to repay the loan to qualify. In most cases, that means a credit score of 640 or higher and a debt-to-income ratio of 45% or lower. Home prices must also fall within location-specific limits.

Just keep in mind that those are the minimums. Certain loans may require a higher credit score, lower debt-to-income ratio, or larger down payment. That being said, if you don’t have any credit score, you can use non-traditional credit documentation so long as the loan source accepts it.

Homes for Iowans Program

Pros – Lower interest rates
– Multiple loan types available
– Don’t need a high credit score for approval
– Potential to combine with Down Payment Assistance and Mortgage Credit Certificate tax credit to save even more
Cons – Must meet lender and IFA requirements
– Strict income and purchase price limits
Eligibility – FICO® credit score of 640 or higher
– Debt-to-income ratios of 45% or lower
– Household must earn less than $121,800
– Home must cost less than $331,000
Best For – Low- and mid-income Iowans that don’t have adequate savings for a down payment

Home for Iowans is almost exactly the same as the IFA FirstHome program, rewarding Iowans with all the benefits of 30-year fixed-rate mortgages financed through federal and conventional programs with the added benefit of working with an IFA-approved local lender.

Interest rates are below-market, and down payments and mortgage insurance requirements are decided by loan type and lender qualifications. In addition to all the FirstHome eligibility requirements, borrowers across the state must have a household income lower than $121,800 and purchase a home that costs less than $331,000.

IFA DOWN Payment Assistance

Pros – Receive up to $2,500
– No repayment required
Cons – Subject to one-time use
Eligibility – IFA FirstHome or Homes for Iowans loan participant
Best For – Homebuyers taking advantage of IFA programs that need more help to cover their down payment or closing costs

The DOWN payment assistance program from the IFA awards FirstHome and Homes for Iowans participants with an additional $2,500 to help cover down payment and closing costs. The grant does not need to be repaid, but it can only be used once.

Military Homeownership Assistance Program

Pros – Receive up to $5,000
– No repayment required
– Don’t need IFA loan to qualify
– Potential to combine with Down Payment Assistance to save even more
Cons – Subject to one-time use
Eligibility – Must use IFA-approved lender
– Current or former military member, spouse, or other beneficiary
Best For – Iowa veterans that need more help to cover their down payment or closing costs

UPDATE: All funding made available for the Military Homeownership Assistance Program (MHOA) for the fiscal year ending June 30, 2019 has been reserved.

Like IFA DOWN, the Military Homeownership Assistance Program provides a grant for down payment and closing costs. This program is only available to eligible service members and veterans making a qualifying home purchase. Though most participants do, you do not have to have an IFA loan to qualify for the Military Homeownership Assistance Program.

So long as you can demonstrate that your have permanently fixed-rate, fully amortizing mortgage loan at least 25 basis points lower APR than the most comparable IFA mortgage product, you will attain eligibility. You do, however, have to use an approved lender.

The most obvious difference is that this grant awards double the amount, meaning up to $5,000, toward the upfront costs of homeownership. Better yet, the Military Homeownership Assistance grant may be combined with a Plus grant, bringing the grand total to a whopping $7,500 for borrowers who qualify for both programs.

IFA MCC

Pros – Reduced federal tax bill
Cons – Not available to FirstHome borrowers
Eligibility – Must use IFA-approved lender
– Must have tax liability
– Income limits dependent on household size and home location
Best For – Homebuyers using a loan from an IFA lender looking to save on their annual tax bill

In addition to loan and rate assistance programs, the Iowa Finance Authority provides eligible homebuyers with a Mortgage Credit Certificate to make homeownership even more affordable. Through this program, borrowers receive an annual federal tax reduction equivalent to 50% of your mortgage interest up to $2,000 a year.

You can claim the credit every year for the life of the loan so long as the home remains your primary residence. That means it could save you thousands of dollars over time. Eligibility requirements for the Mortgage Credit Certificate are similar to other IFA programs.

Tips to Learn More About Mortgage Fees, Payments and Other Costs

Iowa first-time home buyer programs

  • Most homebuyers focus on the down payment, but be sure to factor in moving and closing costs too. When you think about the ongoing costs, remember that homeowners insurance, property taxes and maintenance costs add up – and that’s on top of monthly mortgage payments.
  • Don’t go it alone. The SmartAsset financial advisor matching tool will match you with up to three Iowa-based advisors that can help you navigate your budget as a new homeowner. A financial advisor can also help with things like the estate tax.

Photo credit: ©iStock.com/monkeybusinessimages, ©iStock.com/Nednapa, ©iStock.com/simonkr

Liz Smith Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.
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