The laws that govern purchasing a home vary by state. Here’s what you need to know about buying a home in Iowa.
Sellers are required by law to disclose any conditions that affect the value of the property by either completing a Residential Property Condition Disclosure Statement or by submitting a written statement. These conditions include any known issues with the roof or basement or other parts of the structure or major systems, as well as restrictive covenants or zoning issues.
Sellers must provide the disclosure statement before they accept an offer; otherwise, buyers have the right to cancel the contract or withdraw the offer with or without reason within three days of receiving the disclosure statement (five days if delivered by mail).
Should you encounter difficulty paying your mortgage, know that Iowa primarily enforces a judicial process, meaning your lender will have to go through the courts to foreclose on your home. However, the state also permits a nonjudicial voluntary process as an alternative, which allows homeowners to voluntarily give up possession of the property by signing a written agreement.
For homeowners going through a divorce, Iowa is an equitable distribution state, which means liabilities and assets are divided among spouses. The split is not necessary 50/50, though. The courts distribute assets and debts based on multiple factors including but not limited to the age of each partner, the length of the marriage and each party’s earning potential.
Iowa is an escrow state, meaning buyers do not have to be represented by a lawyer, as is the requirement in some states. Iowa buyers can use an escrow agent to process their closing.
All Iowa home sales incur a real estate transfer tax, based on the purchase price. The rate is 80 cents per $500 of transaction cost. For a $200,000 home purchase, this would be a tax of $320. Buyers pay this tax, so your lender will disclose the exact amount of the tax as you near your closing date.
Once you own your home, you will be responsible for property taxes annually. The median tax in the state is $1,569 for a $122,000 home, according to Tax-Rates.org. Iowa ranks 28th in order of average amount of property taxes. Keep in mind that your tax rate will be based on the county in which you live and varies across the state. Residents in Johnson County pay the highest property taxes in Iowa — $2,526 on average — while Pocahontas County residents pay the lowest, at $561 on average.
Homebuyers can lower their tax liability by taking advantage of the state’s Homestead Credit, available to all buyers who occupy their home as their primary residence for at least six months of the year. Homeowners in the military or a nursing home may still be eligible for the credit.
Homebuyers who wish to claim the credit may do so by signing up in the tax assessor’s office in their county. Once you qualify, you will continue to receive the credit until you no longer qualify or you sell the property.
The state also provides a military property tax exemption to eligible veterans.
In Iowa, the conforming loan limit for conventional mortgages is $484,350, the limit in place for much of the country.
Borrowers who finance their home with non-government loans are subject to these limits, and represent the maximum amount that government-sponsored entities Fannie Mae and Freddie Mac are willing to purchase.
Buyers looking to finance homes above conforming loan limits will need to do so with a jumbo loan, which typically carries a higher interest rate and stricter qualification guidelines.
The Iowa Finance Authority administers multiple programs throughout the state to help make homeownership more affordable for Iowans. Additionally, buyers may qualify for other community and city programs within the state.
Borrowers who qualify can get fixed-rate conventional, FHA, VA, or USDA loans at competitive rates through this program. The conventional loan features include reduced mortgage insurance costs or no mortgage insurance at all, plus down payments as low as 3%. Borrowers can also request an Iowa Title Guaranty Owner’s Certificate at no charge, which provides protection in the event a title defect is identified.
In this program, Iowans can finance a home with conventional, FHA, VA or USDA loans. Features include low interest rates, reduced fees, and reduced or no mortgage insurance on conventional loans. Borrowers also can put as little as 3% down on conventional mortgages. Buyers can also request an Iowa Title Guaranty Owner’s Certificate at no charge, which provides protection in the event a title defect is identified.
Buyers who finance with either the FirstHome or Home for Iowans programs can combine the first mortgage with a $2,500 grant toward closing costs or the down payment.