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Secure Your Dream Home with USDA Loans in Iowa
13 minute read
December 30, 2022

For the last 30 years, USDA loans Iowa have enabled thousands of Americans to buy a home without having to save for a down payment.

As a government-backed program, the financial security behind these mortgages creates some surprising benefits for homebuyers.

If you are a low-to-moderate-income earner looking to buy a home in the Hawkeye state, check out UDSA loans in Iowa.

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What’s in this article?

What is an Iowa USDA loan?
USDA-eligible areas in Iowa
Iowa income limits
USDA loan debt-to-income ratio
Iowa homebuyer assistance
Iowa USDA mortgage rates
USDA pros and cons
USDA mortgage insurance
Apply for an Iowa USDA loan

What are USDA loans?

USDA loans were created in 1991 and designed to spur homeownership in areas outside the major cities—to help stimulate the economies and cultures of rural America.

You may have seen these loans as different names.

  • Section 502 Guaranteed Loan Program
  • RD loan
  • Rural Development Loan

The big incentive for borrowers to use this loan is the chance to achieve their homebuying goals without saving a down payment.

Having the backing of the U.S. government behind these loans allows further benefits for the borrower—like competitively lower interest rates and possible 100% financing.

What are the USDA loan requirements? What are the geographic restrictions to a USDA loan? Can you buy a home in a suburb with USDA loans in Iowa?

USDA-eligible areas in Iowa

Surprisingly, this doesn’t mean that the homes are strictly for farmlands or remote locations—quite the opposite. Towns and cities in Iowa that have 35,000 residents or less might also be considered eligible areas.

If you’re unsure if a home you’re interested in is eligible, consult the specific map that the USDA created that lists the appropriate areas.

For example, here are five urban cities in Iowa that have USDA-eligible areas surrounding them. (Non-shaded areas are eligible for USDA loans.)

Des Moines, Iowa

Des Moines Iowa USDA home loan eligible areas

The economy in Des Moines consists of a vibrant mix of manufacturing, government, services, retail and wholesale trade, medical, and financial services, just to name a few. Insurance is also big business here, with nearly 70 insurance companies plus the regional offices of 100 other firms—all located within the metropolitan area.

The median home price in Des Moines, Iowa, is $194,000

Cedar Rapids, Iowa

Cedar Rapids Iowa USDA Map

Manufacturing continues to be an important economic factor in Cedar Rapids, Iowa, which has lately been augmented by transportation and high-tech industries. The “technology corridor” that runs between Cedar Rapids and Iowa City is one of the nation’s leading centers of the defense electronics industry. The most rapid growth in the metropolitan area economy is telemarketing and telecommunications. USDA-eligible areas like Atkins are only a few minutes drive away.

The median home price for Cedar Rapids is only $183,000.

Waterloo, Iowa

Waterloo Iowa USDA Areas

Waterloo, Iowa, has a vibrant downtown district that features award-winning museums—like the John Deer Tractor and Engine Museum. The Cedar Valley Trails are great places for bicycling or kayaking. Or, for more water fun, consider the Lost Island Water Park, Iowa’s largest. USDA-eligible towns like Denver, Iowa, are only 20 minutes outside the city core.

The median home price in Waterloo, Iowa, is $135,000.

Mason City, Iowa

Mason City Iowa USDA Areas

Mason City has a lot of opportunities for a city of only 27,138 residents and an unemployment rate of just 2.6% (as of Oct. 2022). Mason City also features the last hotel designed by the famous architect Frank-Lloyd Wright and one of two electric freight railways in the country—the Iowa Traction Railway. Areas along Highway 35 are all USDA-eligible, along with many towns in the neighborhood.

The median price for a home in Mason City is $130,000.

Davenport, Iowa

Davenport Iowa USDA Area

There is a diversified economic base in Davenport, Iowa, with somewhat equal distribution among the major sectors of manufacturing, retail and wholesale, and service industries. As a primary wholesale and retail trade center, Davenport draws from a market area of up to 100 miles in every direction. Over a dozen towns around Davenport are all in USDA-eligible areas, like Andalusia along the Mississippi River, only 15 minutes from the city core.

The median home price in Davenport, Iowa, is $170,000.

See if your area is eligible for zero down.
contour Mortage
  • Zero-down USDA loans
  • Special homebuying programs
  • Low down payment
  • Less-than-perfect credit okay

USDA loan income limits for Iowa

The USDA sets income limits to ensure applicants outside of the income bracket these loans were designed for can’t take advantage of the program.

There are two income limit levels—households with 1-4 and 5-8 members. They also consider the county's median income in which applicants plan to buy their homes. Standard USDA income limits are $103,500 (1-4 members) and $136,600 (5-8 members).

If your income is above the county limit, don’t give up hope just yet. There are two major contingencies to this rule.

  • You might still qualify if your income is only 115% or less of the county’s median.
  • Certain deductions can be employed to lower your income. (e.g., childcare expenses, medical expenses, care for elderly household members, disabled members, etc.)

In any case, it’s best to consult your USDA lender to determine whether your income qualifies.

The following are ten counties and their corresponding limits to give you a better idea of Iowa's income limits.

County or Area1-4 member household income limit 2022-20235-8 member household income limit 2022-2023
Cedar Rapids$103,500$136,600
Iowa City$125,350$165,450
Cass County$103,500$136,600
Des Moines$113,300$149,550
Floyd County$103,500$136,600
Lee County$103,500$136,600
Marion County$103,500$136,600
Wayne County$103,500$136,600

Note: The income for all adults in the household is used for this calculation, even if they’re not on the application. But only the income of those people on the application will be used to calculate the maximum borrowing amount.

Another great way to see whether your income is above the limit is to use the USDA’s income tool.

USDA loan down payment and closing costs

These loans don’t require a down payment—but closing costs are another matter.

USDA closing costs are about 2-5% of the loan amount.

However, these costs might be covered as a part of the loan itself, if the home appraises for more than the purchase price.

It’s also possible to pay for closing costs through alternative means, ones not normally available to traditional borrowers, like gift funds, a credit from the lender or seller, or certain other eligible sources.

See if you qualify for a zero-down USDA loan.

Closing cost assistance programs for Iowa

The Iowa Finance Authority (IFA) gives borrowers some options for assistance in buying their home—like The Firsthome Program and the Homes for Iowans Program

Iowa’s Firsthome Program

IFA’s Firsthome Program offers special mortgages for first-time buyers that include

  • A down payment grant for no more than 50% of the minimum payment required
  • 100% of reasonable closing costs to a maximum grant of $10,000.
  • Below-average rates are usually offered.

There is a maximum household income limit applied that varies by county and ranges from $79,500 to $99,700. Applicants also can’t have more than $40,000 in liquid assets (defined by HUD).

They also can't have owned any homes for the past three years, and the property must be the applicant’s primary residence.

Homes for Iowans

This program allows borrowers to receive a grant of $2,500 to assist with closing costs or a down payment or choose a loan from a 2nd Loan program. Combining the Homes for Iowans program with other Iowa Finance Authority loan programs isn’t possible, but the applicant can be either a first-time or repeat buyer.

The 2nd Loan program offers borrowers a loan of up to 5% of the property’s sale price or $5,000, whichever is less.

To find out more information, contact the IFA directly.

USDA borrowing limits

The USDA doesn’t limit the amount a person can borrow for their home, but the lender they use will have their own criteria for loan limits based on two debt-to-income ratios, or DTIs.

To illustrate what this means, let’s use a hypothetical financial breakdown.

Monthly income$8,625
Principal, Interest, tax, insurance, HOA, mortgage insurance$2,500
Front-end debt-to-income29%
Student loans, auto loans, all other payments$1,000
Back-end debt-to-income41%
Example mortgage rate6.5%*
Estimated home price based on the above$325,000

(Note: these values are for example purposes only, your actual figures will vary.)

In the above example, this person makes the standard USDA income limit of $103,500/year or $8,625/month.

The lender will compare their income to the monthly payment amount for the proposed mortgage. This is the front-end DTI. The back-end DTI adds all other debts a person is paying and compares the total to their income.  In this example, the DTI is expressed as 29/41.

Maximum DTI for USDA loans

We’ve used this example specifically because a DTI of 29/41 happens to be the standard maximum DTI for most lenders.

If my DTI exceeds the standard maximum, am I disqualified for a USDA loan?

Most lenders will check a person’s DTI by using a software program directly from the USDA called the Guaranteed Underwriting System or GUS.

If other positive financial factors present for the borrower, like a high credit score, the GUS might approve an application even if the DTI is above the maximum.

However, in cases like this, the lender might do a manual underwriting of the application to see if it matches their own criteria.

Mortgage rates for USDA loans in Iowa

One of the biggest selling points for USDA loans—as far as the lender is concerned—is the guarantee that comes with every loan.

In essence, the government promises to pay back up to 90% of the loan in cases of default. This reduces the risk a lender must take for most other loans, especially conventional ones.

A side-effect of this reduced risk is that lenders can afford to be more competitive with their USDA loan interest rates. This means the rate you can pay with a USDA loan will often be lower than most other loan products.

Check your USDA mortgage rate.

USDA property condition requirements

There is a special requirement for any USDA loan concerning the property's condition.

The USDA requires that any property for which it approves a home loan must be in safe and livable condition. The guidelines for those conditions are very similar to those of the FHA for their home loans.

This requirement does not mean a property you want to buy must be in excellent condition in all respects.

Small, cosmetic problems like dirty walls or threadbare carpeting are unlikely to be a problem. Leaking pipes or roof would be issues that will likely need to be corrected before the deal can finalize.

USDA loans Iowa—pros and cons

Is the USDA loan right for you? Everyone’s needs for a mortgage are going to be slightly different. To paraphrase the old saying: No two borrowers are alike.

Let’s take a look at the pros and cons of USDA loans in Iowa


  • No down payment!
  • Closing costs can come from unconventional sources or roll into the loan itself
  • Lower interest rates usually result from the USDA lender guarantee
  • More competitive insurance costs on average


  • Homes must be located in eligible suburban or rural areas
  • The property can only be single-family (1-unit)
  • Property condition requirements—similar to FHA’s
  • Slightly longer processing times on average
  • Income limits imposed

USDA loans compared to VA, FHA, and Conventional loans

VA loans

  • VA loans have no down payment requirement
  • Like USDA loans, lower interest rates are common
  • VA loans are only available to eligible military members and their spouses, according to the VA itself

FHA loans

  • FHA loans don’t have geographic or income restrictions
  • 2-4 unit properties are okay
  • Down payments are required (3.5% is the lowest you might find, but they will usually be higher).

Traditional (conventional) loans

  • Almost always require a down payment
  • Minimum down payment is usually 3%
  • Rates and terms will vary depending on your credit
Loan featureUSDAFHAConventional
Income limits$103.5k-$238.2KNoneNone
Geographic restrictions?YesNoNo
Down payment0%3.5%3%
Min. credit score580-640580620
Loan limits for 1-unit homeNone$472K-$1.089M$726K-$1.089M
Upfront mortgage insurance1.0% of loan1.75% of loanNone
Monthly mortgage insurance0.35% of loan annually0.85% of loan annually0.40-3%+ of loan annually
See if USDA is the right choice for you.

USDA loan credit score minimum

The minimum standards for credit scores on a USDA loan are hard to define. This is because the private lenders, not the USDA, are the ones who determine the lowest score they will accept.

Typically, you’d be hard-pressed to find a lender who would approve an application with less than 620-640. That doesn’t mean there isn’t a lender out there who would accept an applicant with a score as low as 580, but it’s not as common.

USDA mortgage insurance fee

One of two types of mortgage insurance fees will be included with any USDA loan. The fee was created as a way to continue funding the program for other borrowers in the future.

The USDA loan Guarantee fee:

  • This fee must be paid at closing
  • The fee is calculated at 1% of the loan amount
  • Lenders typically allow this version of the fee to be included as part of the overall loan

The Annual fee:

  • This fee is calculated annually at 0.35% of the outstanding balance
  • The result is split twelve ways and included in the monthly payment

What is a USDA Direct Loan vs a USDA Guaranteed Loan?

Most of the information we’ve dealt with here relates exclusively to one type of mortgage product—USDA Guaranteed Loans. But there is a second type of loan called the USDA Direct loan.

USDA Guaranteed Loan

This is the majority of USDA loans used by Americans because they are offered by private lenders and are best suited for moderate-income earners.

USDA Direct Loan

USDA Direct Loans are issued and administered solely by the U.S. government and are best suited for low to very low-income earners—typically those with an annual income of only $31,500 to $50,500. If you are interested in these loans, it would be best to consult the USDA directly.

Learn even more about homebuying.

How do you apply for UDSA loans in Iowa?

Applying for USDA loans in Iowa is much the same as applying for any traditional home loan.

The main difference is the extra processing step—the lender must submit your application to the USDA for its own review. This extra step can cause a bit of a delay, a few days to a couple of weeks on average.

Overall steps for applying for a USDA loan are as follows:

  • Submit your application to a USDA lender with all documentation.
  • Get an accepted offer on the home you want.
  • An appraisal is ordered on the home you want.
  • The lender submits your application to the USDA for its review.
  • If the USDA approves, the lender finalizes the loan and draws the final documents.
  • You sign the documents, and you get the keys.

Iowa USDA loan FAQ

Can anyone get a USDA loan?

In general, a potential borrower must be under the income limit for the region and be buying a home in an eligible area. They must also meet the lender’s requirements.

What is the standard DTI for USDA loans in Iowa?
How do you know if your desired area is eligible for USDA loans in Iowa?

The bottom line on USDA loans in Iowa

USDA loans in Iowa are one of the best choices for purchasing a home in rural America. If you and your family are hoping to move to a more rural home, or if you can’t save up enough for a down payment, consider USDA loans in Iowa.

See if you qualify for a zero-down USDA loan.

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.