That's because of the parallax effect on your home and lock screens. The photo is supposed to be enlarged when you select it as wallpaper, this is so that when the parallax effect is turned on, there are no black borders between the edge of the photo and the edge of the screen.
There is a $.99 (USD) app in the AppStore called "Wallpaper Fix" (link: https://itunes.apple.com/us/app/wallpaper-fix-rotate-scale/id765059392?mt=8). It adds black borders around the photo and then saves it to your Photos app. Then, because of the black border, when you go to use your photo as wallpaper, it won't zoom in and will look as it's supposed to.
I have successfully used it to make photos fit properly on my iPhone 5. May be worth looking into?