Iowa truly flies under the radar when it comes to great places to buy a house. The low cost of living, beautiful four seasons, safe cities, and top education system are just a couple of reasons you’ll love living in Iowa.

However, if you’re new to the world of homeownership—or not familiar with the Iowa real estate market—navigating this process can be quite the challenge.

No need to sweat it though!

Jerry

, your personal

home and car insurance and broker expert

, is here to break down everything you need to know about buying a house in Iowa! We’ll cover the step-by-step process of getting a house so that you can call the beautiful state of Iowa home.

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Figure out your finances

Before you go scrolling through all the wonderful homes on the market, you must sort out the more mundane things first. The most important part of buying a house in Iowa is knowing and understanding your finances. This includes evaluating things like your credit score, debt-to-income (DTI) ratio, and all payments and fees associated with the home buying process.

Grab a calculator, your financial records, and a cup of coffee (or whatever will help you get through this) because it’s time to figure out what type of house in Iowa will be affordable for you.

Check your credit score

Before doing anything else, you’ll need to check your credit score. Understanding your credit score is a top priority in the process of buying a house because your credit score will dictate whether you can secure a loan.

The rule of thumb for buying a house in Iowa is to have a credit score of at least 620 for most conventional loans.

Here’s what you need to know if your credit score is below 620:

You can still qualify for a mortgage with a lower credit score. But if you are working on saving up for the down payment, you could work on building your credit score as well.

There are some mortgage options for homebuyers with lower credit scores through The Federal Housing Administration (FHA) and Veterans Administration (VA). The FHA accepts credit scores as low as 523 and the VA accepts credit scores as low as 500. However, be aware that the VA mortgage is only an option for veterans and active service members.

Calculate your debt-to-income (DTI) ratio

Your debt-to-income ratio or DTI is another important financial figure when buying a house. You will need to calculate your DTI by adding up your monthly expenses and dividing that number by your pre-tax income.

Your monthly expenses do not include non-debt-related costs such as groceries or health insurance. Below is a list of acceptable expenses to include:

Rent or house payments

Auto payments

Credit card payments

Student loan payments

Alimony or child support

Generally, a conventional loan requires an after-mortgage DTI of less than 36%, a VA loan requires a DTI of less than 41%, and an FHA loan requires a DTI of less than 43%.

Determine your down payment

The amount you can spend on a down payment will play a big role in deciding what type of house you can afford. Typically, a conventional mortgage requires a down payment of at least 20%.

If you are unable to make a down payment of 20%, a loan through the Federal Housing Administration (FHA) or Veterans Administration (VA) may be a better option. Here’s a more in-depth look at these types of loans:

FHA loan: A mortgage for people with low- to moderate-income and first-time homebuyers which is insured by the Federal Housing Administration

VA home loan: A mortgage for servicemembers, veterans, and eligible surviving spouses insured by the Veterans Administration

If your credit score is acceptable (around 580) you can make a down payment as low as 3.5%, assuming you qualify for an FHA mortgage. With a VA loan, you may not have to make a down payment at all. Additionally, VA loans offer low-interest rates and low closing costs.

Prepare for closing costs and other fees

The upside to buying a home in Iowa is that the closing costs are some of the lowest in the country. However, closing costs can be sneaky added fees that you should be prepared for.

On average, a home in Iowa sells between $100,000 and $200,000. If you bought a house within that price range you could expect to pay between $1,136.09 and $4,544.36 in closing costs after taxes. The average closing cost in Iowa is $2,272.18 after taxes, which is approximately 1.14% to 2.27% of the final home sale price. Keep in mind that you usually have to pay these costs out of pocket.

The closing costs will cover the following:

Home appraisal (required by most lenders) fee

Credit report fee

Home inspection fee

Mortgage origination fee

Earnest money (i.e., a good-faith deposit that will go towards your down payment)

Mortgage insurance

Property taxes

Homeowners insurance

Although the closing costs in Iowa are low, the statewide average effective property tax rate is 1.53% compared to the national average which is 1.07%, making it the 11th highest effective tax rate in the country.

MORE:

What is the cheapest way to build a new house?

Look for homeowners insurance

Unfortunately, the cost of homeowners insurance doesn’t stop after the closing costs are covered. This is an expense you will have to account for annually. On average, Iowa residents pay $1,502 per year and $125 per month for homeowners insurance.

We recommend comparing at least three different insurance companies to find the cheapest rate on homeowners insurance. Also, look to your

car insurance

provider to see if you can bundle. Don’t stress though, we have a simple and quick solution to picking an insurance policy.

Jerry

is an insurance comparison app that shops for low prices with over 50 different insurance companies for free. You will get quotes in seconds, can make changes at any time, and if you ever have any questions, agents are just a text away!

Key Takeaway Before you do anything, understanding your financial situation is a crucial first step in the home buying process. You’ll need to know your credit score, DTI, how much you can spend on a down payment and closing costs before you start browsing Zillow for a home in Iowa.

MORE: 10 best companies for home and car insurance

Get preapproved for a mortgage

After you have your finances in order it’s time to prequalify for a mortgage. This is a necessary step because most sellers require a preapproval letter before agreeing to show you their home. The preapproval letter shows that you are serious about buying a home, can obtain a mortgage, and puts you in a good spot for financial negotiations.

Here’s how to get preapproved for a mortgage:

Give the lender your Social Security number

Create a document that lists your banking information, employment history, assets, and debts

Fill out a mortgage application

That said, don't start the preapproval process until you are ready to buy. After you’ve completed the above steps, the lender will verify that it’s correct and perform a hard credit check, which could temporarily lower your credit score.

How to pick the right mortgage in Iowa

The main things to consider when picking a mortgage is the mortgage term and interest rate. Typically a mortgage term is either 30 years or 15 years.

With a 30-year mortgage term, you’ll have a lower monthly payment but a higher interest rate (3.5% on average). If you choose a shorter-term mortgage, you’ll have a lower interest rate (around 2.5% on average) but you’ll make a higher monthly payment.

When deciding on a loan, you also should compare options from a couple of lenders. You’ll be more likely to get a better interest rate and loan terms if you shop around.

Look for a house

Finally, the fun part of the home buying journey has arrived! Now that you understand your financial situation and have obtained preapproval for a mortgage, you’re ready to browse the houses.

Pick your city or neighborhood

Begin deciding what is most important to you in the place that you live. List out what you’re looking for in terms of cost of living, culture, and climate.

Des Moines

Iowa City

, North Liberty, and

Cedar Rapids

are currently some popular markets.

Some things to consider are your proximity to schools, restaurants, scenery, and nightlife. Luckily Iowa ranks in the top 20 for public safety but you should still take a look at local crime rates and how much car insurance will cost.

MORE:

The 16 perils of home insurance

Buyer’s market vs. seller’s market

When buying a home, it is helpful to know whether you’re working with a buyer’s market or a seller’s market.

In a buyer’s market, there are more houses available than there are buyers, so you might be able to get a better deal on the home

If there are more buyers than there are houses for sale it’s a seller’s market and negotiating the price may be more difficult

To find out whether you are entering a buyer’s or seller’s market, look into recent home sales and compare the asking price to the final price. When the asking price is generally lower than the final price, it’s a seller’s market.

You also can look at the time on the market to determine which type of market it is. If houses are going quick, it’s likely a seller’s market but if they sit for a couple of weeks or more, you’re probably looking at a buyer’s market.

Currently, Iowa is primarily a seller’s market. Sales prices have continued to rise as the demand for homes in the midwest increases and inventory is limited. However, this doesn’t mean it’s impossible to find your dream home in Iowa and the market can change at the drop of a hat.

Find a real estate agent

The home buying process can be quite stressful, but, luckily, you have the option to hire a real estate agent. Although it is not required that you hire a realtor in Iowa, it can take a lot of the stress off your shoulders. Realtors are very knowledgeable about the home buying journey and will assist with any questions or hesitations you might have along the way.

The best way to find an agent is to ask friends and family for recommendations. However, if you’re moving to a completely new area, do your research and find one that will accommodate all your needs.

Make an offer

Finally, we are nearing the end of the home buying process, and it’s time to make an offer on your dream home. There will be quite a bit of paperwork involved, but a real estate agent can help you fill it out and decide on a reasonable offer. If you’ve followed all the necessary steps above and adequately prepared the funds then you’ll be all set to begin your journey as a homeowner!

MORE:

Does homeowners insurance cover bellied pipes?

How to save on homeowners insurance

As mentioned earlier, you will need to look into homeowners insurance when going through the homebuying process. We understand this is not a particularly fun part but it is necessary in protecting your new place.

If you’d rather leave the hard work of gathering quotes to someone else, use

Jerry

. The Jerry app can collect quotes from more than 50 top insurance companies, like Travelers, Nationwide, and Progressive, in seconds! They even help you bundle your homeowners and auto insurance so you can save on both.

This Jerry user was thrilled with their experience, giving the app five stars:

“Jerry was wonderful! I used it for my auto and renters policies. I trusted it so much that I signed up my homeowners insurance under Jerry as well. All of the agents are amazingly nice and knowledgeable.” —Mary Y.

How much money do I need to buy a house in Iowa?

Considering that the average house in Iowa costs around $158,002, you would need at least $3,160 in savings. This number will vary depending on many factors such as the area you’re planning to live in and how big of a down payment you can make.

What credit score is needed to buy a house in Iowa?

A credit score of at least 620 is usually what is required to buy a home in Iowa. As long as you have a credit score above 500, you may be able to qualify for an FHA loan or a VA mortgage.

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