Updated April 2026

Iowa Real Estate Exam: Mortgage Types Comparison

Last updated: April 2026

Navigating the complexities of real estate financing is a critical competency for any aspiring real estate professional. For candidates preparing for the state licensing exam, understanding the nuances of different mortgage products is non-negotiable. Whether you are dealing with a first-time homebuyer in downtown Des Moines or a family purchasing a rural property in Dallas County, knowing which loan product best fits their needs is a cornerstone of fiduciary duty. For a broader overview of exam topics, be sure to review our Complete Iowa Exam Guide.

In this guide, we will compare the primary mortgage types you will encounter on the Iowa real estate exam: Conventional, FHA, VA, USDA, and state-specific Iowa Finance Authority (IFA) loans. We will explore their regulatory frameworks, minimum requirements, and practical applications.

Understanding Primary Mortgage Categories

Mortgages generally fall into two broad categories: conventional loans and government-backed loans. Under Iowa Code Chapter 535, which regulates money and interest, lenders must adhere to strict state and federal guidelines, including the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), when originating these loans.

Conventional Loans

Conventional loans are not insured or guaranteed by the federal government. Instead, they are typically backed by private lenders and often sold on the secondary mortgage market to Government-Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac.

  • Down Payment: Can be as low as 3% for first-time buyers, though 5% to 20% is more common.
  • Private Mortgage Insurance (PMI): Required if the borrower puts down less than 20%. PMI protects the lender, not the borrower, in case of default. PMI automatically drops off when the loan-to-value (LTV) ratio reaches 78%.
  • Credit Requirements: Generally require higher credit scores (typically 620 or above) compared to government-backed loans.

When discussing conventional loans, it is also important to understand how interest is applied over the life of the loan. You can learn more about this in our guide to Iowa interest rate types (fixed vs. adjustable).

Federal Housing Administration (FHA) Loans

FHA loans are insured by the Department of Housing and Urban Development (HUD). They are designed to make homeownership more accessible to low- and moderate-income borrowers.

  • Down Payment: Minimum of 3.5% for borrowers with a credit score of 580 or higher.
  • Mortgage Insurance Premium (MIP): Unlike conventional PMI, FHA loans require both an Upfront Mortgage Insurance Premium (UFMIP) and an annual MIP, which remains for the life of the loan if the down payment is less than 10%.
  • Property Standards: Properties must meet strict health and safety standards during the appraisal process.

Veterans Affairs (VA) Loans

Guaranteed by the Department of Veterans Affairs, VA loans are available to eligible veterans, active-duty service members, and certain surviving spouses.

  • Down Payment: 0% down payment required in most cases.
  • Mortgage Insurance: No PMI or MIP required.
  • Funding Fee: A one-time VA funding fee is applied (ranging from 1.25% to 3.3%), which can be rolled into the loan amount. Veterans with service-connected disabilities are exempt.

USDA Rural Development Loans

USDA loans are heavily tested on the Iowa exam because a significant portion of the state qualifies as "rural" under USDA guidelines. Backed by the U.S. Department of Agriculture, these loans aim to boost rural development.

  • Down Payment: 0% down payment required.
  • Eligibility: The property must be located in a designated rural area (which includes many towns outside major Iowa metros like Des Moines, Cedar Rapids, and Davenport). Borrowers must also meet strict income limits (usually not exceeding 115% of the median area income).
  • Guarantee Fee: Requires an upfront guarantee fee and an annual fee, similar to FHA's MIP but generally lower.

Because USDA loans have strict property condition requirements, the valuation process is highly regulated. Review our article on Iowa property valuation methods to understand how appraisers assess these homes.

Iowa Finance Authority (IFA) Loan Programs

For the Iowa state-specific portion of the licensing exam, you must be familiar with the Iowa Finance Authority (IFA). The IFA offers programs designed to make homeownership affordable for Iowans.

FirstHome Program

Designed for first-time homebuyers (or those who haven't owned a home in the last three years), the FirstHome program offers competitive interest rates and can be paired with down payment assistance.

Homes for Iowans Program

This program is available to both first-time and repeat homebuyers. Like the FirstHome program, it provides competitive rates and eligibility for down payment and closing cost assistance.

Down Payment Assistance (DPA)

IFA offers DPA in the form of a grant (typically up to $2,500) or a 2nd mortgage loan (up to 5% of the home's sale price). These programs can be layered on top of Conventional, FHA, VA, or USDA loans.

Visualizing Down Payment Requirements

To help you memorize the baseline requirements for the exam, review the chart below comparing the standard minimum down payment percentages across different loan types.

Minimum Down Payment (%) by Loan Type

Practical Scenario: Advising an Iowa Buyer

Exam questions often present situational scenarios. Consider this example:

Scenario: A young couple wants to buy a $250,000 home in Adel, Iowa. They have a combined income of $75,000, excellent credit, but only $5,000 saved for a down payment and closing costs. What is their best financing option?

Analysis:

  • Conventional: A 3% down payment is $7,500. They do not have enough cash to cover the down payment plus closing costs.
  • FHA: A 3.5% down payment is $8,750. Again, they fall short on cash.
  • USDA: Because Adel is located in a USDA-eligible rural area, and their income falls below the median limits for Dallas County, they qualify for a 0% down USDA loan.
  • IFA Alternative: They could also use an IFA Homes for Iowans program paired with an FHA or Conventional loan, utilizing a 5% DPA second mortgage ($12,500) to cover their down payment and closing costs.

Regardless of the loan chosen, the couple will still need to provide an initial deposit to secure the contract. You can refresh your knowledge on this process by reading our guide on Iowa earnest money and escrow.

Frequently Asked Questions (FAQs)

1. What makes a property eligible for a USDA loan in Iowa?

A property is eligible for a USDA loan if it is located in a geographic area defined as "rural" by the USDA Rural Development program. In Iowa, this includes almost all areas outside the immediate city limits of major metropolitan centers like Des Moines, Cedar Rapids, and Iowa City. The property must also be a primary residence and meet specific safety and structural standards.

2. Can an Iowa buyer use an IFA grant with an FHA loan?

Yes. The Iowa Finance Authority (IFA) down payment assistance programs (both grants and 2nd mortgage loans) can be layered with FHA, VA, USDA, and Conventional loans, provided the borrower meets both the IFA income/purchase price limits and the specific loan's underwriting guidelines.

3. Who regulates mortgage lending practices in Iowa?

While federal agencies oversee national loan programs (HUD, VA, USDA), mortgage lenders and brokers operating in the state are regulated by the Iowa Division of Banking (IDOB). They ensure compliance with state-specific lending laws, including Iowa Code Chapter 535 regarding interest rates and lending practices.

4. What is the difference between PMI and MIP on the Iowa real estate exam?

PMI (Private Mortgage Insurance) applies to Conventional loans when the borrower puts down less than 20%. It can eventually be canceled. MIP (Mortgage Insurance Premium) applies specifically to FHA loans. FHA requires both an upfront premium (UFMIP) and an annual premium, which typically remains for the life of the loan if the down payment is less than 10%.

5. Does a VA loan require an earnest money deposit in Iowa?

Yes. While a VA loan allows for a 0% down payment, an earnest money deposit is still typically required by the seller to demonstrate the buyer's good faith in the transaction. If the loan covers 100% of the purchase price and closing costs are paid by the seller, the veteran may receive their earnest money back at closing.

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