If you're visiting in summertime you won't regret bringing an eye mask with you. During the height of summer there is no actual darkness and in the north, the sun might just dip for a few minutes below the horizon.
The hotels are usually fairly basic around the island but you can usually get a room even in August just by phoning them up and reserving it before you get there. They are very clean and well maintained, light and airy with nothing at all that could even remotely be considered 'dingy'. They are expensive though. Fosshotels (http://www.fosshotels.is) is a chain of 10 hotels, 3 stars tourist class located throughout Iceland, close to the island's most treasured nature spots and major cities of Iceland. The most popular hotel is Fosshotel Westfjords located in the Westfjords. Fosshotel Reykjavik, planned to open in 2015, will be the biggest hotel in Iceland. The accommodation in Fosshotel hotels is diverse and scandinavian breakfast buffet and internet is always free of charge. Icelandair Hotels (http://www.icelandairhote...) which include the Edda (http://www.hoteledda.is/EN/) summer hotels and the Icelandair hotels. Icelandair Hotels are upscale, Scandinavian style hotels located in most major cities of Iceland.
Guesthouses are between hotels and hostels in prices and services. At some times if traveling in groups the guesthouses can be cheaper than the hostels. Guesthouses will usually have more space than a hostel with a shared bathroom that is cleaner and less crowded. Icelandic Farm Holidays (http://www.farmholidays.is/): is a vast network of rural accommodation all around Iceland including guesthouses, bed and breakfasts, country hotels, self-catering cottages, apartments and traditional farms. Most are within easy reach of key routes and popular holiday attractions but many are also tucked away in villages or rural settings off the beaten track. Categories range from simple yet comfortable rooms with shared bathrooms to more elaborate rooms with private bathrooms. Local food is often available, also activities such as horse riding tours, guided walks or a chance to take part in farm activities. Icelandic Farm Holidays is a membership-based operation. The Icelandic Farm Holidays Association was founded by farmers in 1980 and the travel agency by the same name is still majority-owned by the farmers themselves. Members need to fulfil strict quality standards and are inspected on a regular basis. Travel Service Bakkaflot in Varmahlid, north Iceland, offers all kind of accommodation. You can rent a summerhouse for your family, stay in a fairly new, small but cozy cabin with ensuite facilities or if you are looking for cheaper options, they have sleeping accommodation in the main guesthouse. They have restaurant facilities, swimming pool and hot pools and whitewater rafting also.
Iceland has many hostels throughout the entire country. 37 of them belong to Hostelling International Iceland (http://www.hostel.is/disp...) and it is best it to buy the international membership card if you do not have it already, if you are staying for four or more nights at HI hostels in Iceland or abroad within the next year. Bring your bed-linen or sleeping bag to avoid extra costs. Also it is advisable to book ahead especially for hostels in more remote locations during busy periods such as the summer.
A budget alternative to hostels can sometimes be found through short-term accommodation rentals sites.The cheapest options will usually consist of a private room in someone's home or apartment, along with kitchen and bathroom access, and this can often work out as the same price or even cheaper for two persons compared to a hostel dorm, and significantly cheaper than hotels, in Reykjavik at least. Some hosts will also rent their car to guests for a much cheaper rate than car rental companies, and do airport pickups.
If you're travelling on a budget, camping is your best bet. There are sites located throughout the country, especially at places you'd want to visit. They range from fully-equipped hot showers, washing machines, cooking facilities to farmers' fields with a cold-water tap. Expect to pay 500-1000 Kr per person per night. If you intend to camp in Iceland you must be prepared for the cold, 3 season sleeping bags are essential and an inner, I would also highly recommend thick pyjamas and a warm hat! A bedding roll is also useful as you may end up sleeping on very rough ground...and that's just not very comfortable at all! Don't wait until last minute to find a place to camp. Campers and mobile homes have become immensely popular among Icelanders and they take up a lot of space. You could arrive at a large camping ground that's so filled up with campers and mobile homes that you'll have no place to pitch your tent.
Trekkers will need to use some of the mountain huts, either government or privately-run. These range from dormitory accommodation to fully-staffed facilities. Booking ahead is likely to be necessary at popular times of year and they may only be accessible in summertime. The huts on the Laugavegur trail in particular need to be booked with a long time in advance, as it is the most popular trekking trail in Iceland with tourists and locals alike.
Don't bother attempting to sleep in the Keflavík Airport overnight. It's far better to find a hotel in Keflavík or Reykjavík before arrival. If there are no flights to be serviced in the middle of the night which is most often the case the airport is closed for a few hours at night and you might have to stand outside in the rain and wind.