How do I calculate my mortgage payment?
It's far more simple to use a mortgage calculator to determine your mortgage payment in Iowa than it is to try to do the math by hand, but if you're mathematically curious, the formula looks like this:
Your basic mortgage payment, made up of just your principal and interest charges (often known simply as "PI" or "P+I") is the result at the end of this calculation. Your payment is based on three basic factors: how much you borrow, at what rate you borrow it, and for how long you need to pay it back. Your payment will be the same each month, but the allocation of principal and interest are different, with increasingly more principal being paid off each month, causing the interest to be less the following month.
The mortgage payment that you see each month may be different from the basic PI, though, because other things can be included in your payment, if you and the bank agree to it. These include items like: principal, interest, real estate taxes, and homeowners insurance, commonly called PITI. Sometimes, extra fees like homeowners association (HOA) assessments are also included in the mortgage payment, as well as any optional insurance you choose for risks like natural disasters.
In addition, if you have a smaller than 20% down payment like most Americans, you will likely also have to pay for mortgage insurance. This will be private mortgage insurance (PMI) on a conventional loan. If you're getting an FHA loan, it'll be a mortgage insurance premium (MIP).
To calculate your new mortgage with these additional expenses included, just click "show additional inputs" on the mortgage calculator above and add your estimated figures. It will get you a very close estimate of what to expect.
Things to know before buying a house in Iowa
Iowa has extremely affordable real estate prices compared to the rest of the country, but the taxes on that property may be on the high side. On average, Iowa counties collect about 1.29% of a home's assessed fair market value, making it the 15th most expensive state in the nation for taxes. If your home is assessed at $122,000, you'll be paying $1,569 each year.
Iowa is warming due to climate change, and flooding is becoming more common. For a residential home buyer, climate change might not yet have a significant impact, but because the economy is largely driven by agriculture, there could be knock-on effects from high temperatures, including droughts and dangerous flooding. Tornadoes and snowstorms are considered major hazards in the state. Iowa currently averages about 50 tornadoes a year, but it's unknown what impact climate change may have on this.
Tornadoes and flooding can cause damage that goes beyond your basic homeowners insurance policy, so depending on where you move in Iowa, it may be important to also secure wind and flood insurance. Ask your insurance agent about specific hazards your home may encounter, so that you're prepared for what may come. It's often cheaper to insure your home than to try to dig out financially after an event that's not covered at all. Once you know what insurance will cost, you can plug that number into the Iowa mortgage calculator to help give you a better estimate of your overall payment.
Tips for first-time home buyers in Iowa
If you've been considering buying your first home in Iowa, but need a hand, The Iowa Finance Authority can help. It offers three different programs to help you afford your first home.
FirstHome Grant Program
The FirstHome Grant gives $2,500 to home buyers who qualify to help cover their down payment or closing costs. The qualifications are simple. A recipient must:
- Be a first time home buyer
- Have a household income under $95,200 in most areas for a household of two
- Buy a home priced under $481,000 in most areas
- Occupy the home as a primary residence
FirstHome Loan Program
The FirstHome Loan is a second loan, up to 5% of the home's sales price. There's no monthly payment required, but you will have to repay it if you sell, refinance, or at the end of 30 years, whichever happens first. The requirements are the same for the FirstHome Grant program, meaning that a recipient must:
- Be a first time home buyer
- Have a household income under $95,200 in most areas for a household of two
- Buy a home priced under $481,000 in most areas
- Occupy the home as a primary residence
Homes for Iowans
The Homes for Iowans program is also a second mortgage with no monthly payment that can be used to pay for your down payment or closing costs, up to 5% of the home's sales price. It's different from the FirstHome program in that you don't have to be a first-time buyer to use it, and the limits are considerably higher.
The household income limit for Homes for Iowans is $161,560, making it accessible to considerably more Iowans, and the home purchase limit is $588,000, allowing for even more purchasing power.
Advice for all first-time borrowers
Whether you qualify for down payment and closing cost assistance in Iowa or not, you can still apply for other loans with appealing terms for first timers, like FHA loans or conventional loans. Both have low down payment requirements, making them easier to secure, and can be used on a vast array of homes. USDA loans are also going to be possible in much of the state, depending on how big of a city you want to live in.
In order to qualify for any mortgage, you'll want to work hard to make yourself into the best candidate. Here are a few tips:
- Boost your credit score with on-time payments and low credit card utilization
- Pay off debt to improve your debt-to-income ratio
- Secure a steady job (or don't leave your current job)
- Save for both closing costs and your down payment
In addition, guard your credit carefully by not opening any new accounts or applying for credit too soon before your loan application. Each time you apply or open a new credit account, your credit will take a little hit. Inquiries take two years to fall off your credit report, so plan accordingly.