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First-time homebuyer programs in Iowa

Mediafeed 11/26/2022 Kenny Zhu

Homes in the Hawkeye State remain relatively affordable but joined the U.S. rise in prices.

As of May 2022, the median home sale price in Iowa had risen to $265,800 from $235,800 the year prior. This represents a home price spike of $30,000, or 12.7% year-over-year, based on data collected from Redfin.

While these numbers may sound like a bummer to a first-time homebuyer entering the market in 2022, prospective homeowners need not fret. A number of homebuyer assistance programs exist that can make your home buying journey more affordable.

Most of these programs are available through the Iowa Finance Authority (IFA) and can especially be of help to first-time buyers.

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.

Recommended: The SoFi Guide to First-Time Home Buying

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 $109,000, but the limit varies by county.
  • Home purchase price limit: $349,000 for non-targeted areas; $427,000 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 45%

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 reduced mortgage insurance on a low-down-payment mortgage loan.

Homes for Iowans comes with down payment assistance options, either in the form of a $2,500 grant or $5,000 second home loan (or up to 5% of home price, repayable once the home is resold).

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

  • Household income limit: Generally should not exceed $152,600 or 80% of the area median income for conventional mortgage loans (county-specific)
  • Home purchase price limit: $427,000
  • 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 45%

3. Down Payment Grants and Loans

The IFA’s two mortgage programs can be married with either a $2,500 grant or a loan of up to $5,000 (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 mirrors the requirements for their respective loan program.

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

4. Military and Minority Down Payment Programs

Both programs offer a $5,000 grant to eligible homebuyers to cover a down payment and closing costs.

Military Homeownership Assistance is geared toward veterans, active-duty service members, and surviving spouses using a FirstHome or Homes for Iowans mortgage, while the minority down payment program is for eligible historically disadvantaged minorities in Iowa who are using a FirstHome mortgage.

(However: The IFA will approve a grant with non-IFA financing if the lender is offering a fixed-rate mortgage of lower cost than the most comparable IFA mortgage available at the time the loan estimate is issued.)

Someone who qualifies for the assistance grant and second loan opportunity could receive up to $10,000 toward a down payment or closing costs.

Both down payment grants are subject to funding availability, which was exhausted at the time of this writing. 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

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.

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 HUD, insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers with FICO credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

Gift money for the down payment is allowed from certain 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. You can learn more about FHA loans in general and FHA lending limits by area.

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 surviving spouses may apply for loans backed by the Department of Veterans Affairs. VA loans, to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. For most applicants, there is a one-time funding fee that can be rolled into the mortgage.

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.

U.S. 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

This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. 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 2022

Homebuyer demographics can vary drastically by location. Here are average age and income stats for some of Iowa’s top metropolitan statistical areas, based on data collected by the National Association of Realtors.

Iowa First-Time Homebuyer Stats for 2022 © Provided by Mediafeed Iowa First-Time Homebuyer Stats for 2022

Here’s some statewide housing data about single-family detached homes sourced from the Iowa Association of Realtors, last published in March 2022.

  • Average days on market for listings: 43 (down from 52 in 2021)
  • Year-over-year change in new listings: -3% (from 9,822 in 2021 to 9,530 in 2022)

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 jeopardize 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 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 can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.
  • 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 be able to harvest mortgage and down payment help through a state or local program. Other first-time buyers can look into the great melange of mortgages on their own for the right fit.

Learn More:

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

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