Best FHA Loans in Iowa

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Contributor, Benzinga
December 3, 2019

Wondering what you need to do to get an FHA loan in the Hawkeye State? We’ll share the FHA requirements and guide you through Iowa’s state assistance programs. We’ll also rank the top mortgage lenders in Iowa. Plus, don’t miss out on our bonus guide if you’re a first time home buyer

The Best FHA Lenders in Iowa:

What is an FHA Loan?

So, what is an FHA loan, anyway? FHA loans are mortgages backed by the federal government through the Federal Housing Administration. 

Some of the benefits you’ll experience from an FHA loan include:

  • Low credit score minimums (from 500 to 580)
  • Low down payment options (from 3.5% of your home’s value)
  • Lower-than-market interest rates

FHA loans can make it easier for you to afford your first home if you’re a low- to mid-income buyer in Iowa. The majority of FHA home loans are purchase loans used to finance your new home, but refinance options are also available to help existing homeowners redo their current home loan.

FHA loans are secured through the federal government but they’re serviced by conventional lenders like credit unions, banks and even online lenders. Most conventional lenders in Iowa offer FHA loans.

Requirements for an FHA Loan

First, it’s important to check out the loan requirements to make sure you’ll eligible. FHA loans for 2019 require:

  • A 580 minimum credit score (with a down payment of 3.5%)
  • A 500 minimum credit score (with a down payment of 10%)
  • Steady job history and proof of employment
  • Purchase of a primary residence — not a second home

Another requirement of FHA loans is a debt-to-income (DTI) ratio of 43% or less. DTI refers to the amount of money you pay toward debt each month compared to the amount of pretax income you bring home each month. You can figure out your DTI by dividing your monthly expenses by your monthly pretax income.

For instance, if you pay $1,600 in expenses every month and bring home $4,800 each month before taxes, your DTI formula would be $1,600 / $4,800. This means your DTI is 0.33, or 33%, and meets the requirements for an FHA loan.

Each lender has its own requirements — look at all lender requirements before you apply for an FHA loan.

Lender Specifics for FHA Loans

Every lender has its own requirements for FHA financing. To give you a better idea of what to expect, we’ve gathered data on a few top lenders in Iowa. Take a look at the credit score data, loan servicing information and down payment requirements for each.

LenderMinimum Credit ScoreLoan Servicing Minimum Down Payment
Rocket Mortgage®580In-house3.5%
CitiBank580In-house3.5%
PNC Financial Services640In-house3.5%
Guild Mortgage580In-house3.5%
guaranteed Rate580In-house3.5%

Interest Rates for FHA Loans

The interest rate, or mortgage rate, on your FHA home loan will determine how much interest you pay. Your individual rate is determined by your lender based on your credit score, down payment, home location, mortgage type and mortgage term.

There are 3 main mortgage terms you should know for FHA loans: 30-year fixed, 15-year fixed and 5/1 ARM.

30-Year Fixed-Rate Term

This mortgage term refers to an FHA loan with a set monthly payment and mortgage rate made over a period of 30 years. Thirty-year fixed mortgages have higher interest rates than shorter mortgage terms, and you’ll pay more interest over the long term. One of the benefits of this loan term is the smaller monthly payments you’ll make, which can be more affordable for first time home buyers.

15-Year Fixed-Rate Term

This mortgage term offers a set monthly payment and mortgage rate made over a period of 15 years. This type of fixed mortgage has lower interest rates than 30-year fixed mortgages and you’ll pay less interest overall. Your monthly payments will be larger compared to a 30-year fixed rate.

5/1 ARM Term

A 5/1 ARM doesn’t have a fixed rate. 5/1 adjustable-rate mortgages (ARMs) lock in a set rate for a period of 5 years and your rate fluctuates after that based on the market. This type of mortgage term could make sense for you if you’re a low-income buyer who expects to make more money after the introductory period.

Do You Need Mortgage Insurance?

You’re required to buy monthly mortgage insurance if you put less than 20% down on your home. This insurance protects your lender in the event that you’re unable to continue paying your mortgage and default on your loan.

FHA loans require you to purchase an FHA mortgage insurance premium (MIP) if you put less than 20% down on your home. You’ll pay 1.75% of your loan’s value during the time of closing and should expect to pay between 0.45% and 1.05% of your loan amount each year. 

Unlike many mortgage insurance policies, MIP generally cannot be canceled once you’ve paid off 20% of your loan’s value. You’ll pay MIP for the duration of your home loan.

How to Apply for an FHA Loan in Iowa

Now that you know more about FHA mortgage requirements, you can get ready to apply for your home loan. Before you apply, gather some documentation:

You’ll need:

  • Your Social Security number
  • 2 months of pay stubs
  • 2 years of tax information
  • Your profit and loss statements (if self-employed)
  • Your financial balances for any checking, savings, investment and retirement accounts
  • Your current debt balance (including credit cards and loans)

Before you finalize your FHA loan application, look into any FHA loan financial assistance programs in Iowa. Many of these programs and grants can be added to your FHA loan but you should always double-check with your lender to be sure.

Here are the first time home buyer programs available through the Iowa Finance Authority (IFA):

  • FirstHome Plus Grant: This down payment assistance program offers up to $2,500 to first time home buyers. You’ll need to meet FirstHome requirements to be eligible. Home loan amounts cannot exceed $271,000.
  • Homes for Iowans Down Payment Assistance: You may still be eligible for down payment assistance if you don’t meet FirstHome requirements. The Homes for Iowans Down Payment Assistance program also offers up to $2,500 in assistance for buyers. Your income cannot exceed $121,800 and your loan cannot exceed $331,000 to be eligible.

It’s always a good idea to see if you qualify for additional assistance, especially if you’re worried about your down payment amount.

5 Best Lenders for FHA Loans in Iowa

Now that you understand your FHA home loan options, you’re ready to start looking for your FHA mortgage lender. We’ve compiled the top 5 FHA lenders in the state to help you make the best decision.

1. Best Overall: Rocket Mortgage®

Rocket Mortgage®, owned by Quicken Loans®, is one of the top lenders in Iowa. You can easily apply online in a matter of minutes and find out if you’re approved.

You’ll also be able to find out which mortgage options are available to you. Rocket Mortgage® also offers 24/7 customer support.

FHA credit score requirement: 580

2. Best for a Variety of Options: New American Funding

An FHA loan is ideal for those who have less than perfect credit or no credit history. You'll have the option of 30 year fixed or 15 year fixed loans with a low down payment option. To qualify for an FHA loan though New American Funding you'll need a credit score of 580 or higher, 3.5% - 10% down depending on credit score and proof of steady income. Along with that, mortgage insurance is required, there are higher home inspection standards and the loan will have to be used for a primary, residential property. 

New American Funding has a A+ rating with the BBB and over 236k reviews. There's something to be said about reputation and borrower satisfaction when it comes to New American Funding. Apply today for an FHA loan.

3. Best in Customer Service: Guild Mortgage

Guild Mortgage is a great choice if you’re a first time home buyer in Iowa who has questions about FHA loans. Guild is well known for its large selection of FHA mortgages.

Guild works with state down payment assistance programs and doesn’t have a minimum FHA credit score requirement.

FHA credit score requirement: N/A

4. Best for Small Down Payment Options: guaranteed Rate

guaranteed Rate may be able to help if you’re worried about your down payment. guaranteed Rate offers a good selection of FHA loans and also offers low down payment requirements.

The lender can help you apply down payment assistance to your FHA loan. Apply online or through guaranteed Rate’s intuitive mobile app.

FHA credit score requirement: 580

5. Best for In-Person Service: Wells Fargo

Wells Fargo might be a good choice for you if you’d rather partner with a lender that can walk you through every step of the FHA mortgage process in person. Wells Fargo has locations all across the Hawkeye State and can answer any FHA loan questions you might have.

This lender also offers loan education programs to help first time buyers learn more about homeownership.

FHA credit score requirement: 620

Get the Right FHA Loan for Your Iowa Home

Finding the right FHA lender is important to your financial success. Take time to research your mortgage options, review FHA loan terms and compare lenders until you find one that offers the benefits you want and need.

Frequently Asked Questions

Q

1) Q: How do I get pre-approved?

A

First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!

Q

2) Q: How much interest will I pay?

A

Interest that you’ll pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.

Q

3) Q: How much should I save for a down payment?

A

Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first time buyers. Check out the lenders that specialize in making the home buying experience a breeze.

Get Ready for Take Off

Rocket Mortgage® is an online mortgage experience developed by the firm formerly known as Quicken Loans®, America’s largest mortgage lender. Rocket Mortgage® makes it easy to get a mortgage — you just tell the company about yourself, your home, your finances and Rocket Mortgage® gives you real interest rates and numbers. You can use Rocket Mortgage® to get approved, ask questions about your mortgage, manage your payments and more.

You can work at your own pace and someone is always there to answer your questions — 24 hours a day, 7 days a week. Want a fast, convenient way to get a mortgage? Give Rocket Mortgage® a try.