When you try to use a small picture for your background on iOS, it automatically zooms in and resizes the image. It's annoying if you're trying to use a non-portrait image. OS X Daily has a simple workaround.
Essentially, you'll just need to take a screenshot of the image so it's the correct size of the screen.
- Find the photo you want in the Photos app and open it up.
- Tap the picture so the editing tools disappear.
- Tap the Home and Power button to take a screenshot.
- Head back to your photo library, tap the new screenshot, tap the share button and chose "Set as Wallpaper."
That will get rid of the weird zoom, though it will have a black border around it. Still, it's better than the alternative.