C.N.
I too have been looking for some and recently ran across the website www.alphabetpatterns.com, they have tons of fonts to choose from and the sizes run from 2 inch to 6 inch so you could get your 3 inch letters. It looks like you buy the template and cut out the letters then trace them on to the fabric of your choice. I am not very familiar with iron on part but it looks like you got some responses on that.