Interested in no-interest mortgage? Try Evansdale
Evansdale, Iowa — If you're interested in buying a new home with a no-interest mortgage - and willing to travel - you might want to think about settling down here in Evansdale.
Mind you, neither the city-spawned idea for the mortgages nor the homes themselves are set in concrete: The City Council in this small blue-collar suburb of Waterloo has yet to give the project the green light. But if it does - as expected later this fall - the proposal is almost sure to have some takers.
The plan as it is shaping up would require home buyers to make a 33 percent down payment on a typical $50,000 home. If they couldn't gather the money for that, the city would be willing to lend as much as $10,000 per home, at no or low interest, from a tax-increment fund. Buyers wouldn't have to pay it back until the end of the term of the mortgage.
The buyer would then make monthly, zero-interest mortgage payments of $400 or could be paid off within five to seven years.
Evansdale's city officials didn't start specifically with the motive of rescuing would-be homeowners from the high-interest-rate blues. They happened to have a vast amount of city-owned land on their hands and were eager to get it back on the tax rolls.
If you drive along the lone commercial strip on Lafayette Street (a bank, a hardware store, a few gas stations) and around the residential section of this community of 5,000, you begin to realize that Evansdale faced a somewhat unusual situation. The many scattered empty lots and the high stone basements under many of the existing homes offer a clue.
The town is bounded on three sides by water - a winding river and a creek. Flooding in years past was a persistent problem. To help homeowners better afford costly flood insurance, the community enrolled six years ago in a federally subsidized program. With it came strict regulations on new building, which in effect led to a moratorium on new construction. Building permits, which had been issued at the rate of about 120 a year, fell to no more than two or three a year.
The city, which had been buying up parcels of land and clearing them of run-down homes under federal community-development programs, acquired some 185 vacant lots within a few years' time. But the strict flood-plain building rules kept local residents from snatching up the available property.
Now Evansdale has a shot at a fresh start. Over the last few years the community has been ringed by dikes and highways. The US Army Corps of Engineers is completing the last of the dikes - a westside levee along the Cedar River. When that happens, Evansdale will move out of the flood-plain category and back into the ranks of normal communities.
City leaders were convinced that there was strong pent-up demand for new housing. They saw contracting with builders and would-be home buyers as one way to get the city's many vacant lots developed and back on the tax rolls. To spur speedy action, they discussed ways to keep interest rates at minimum levels. That's when city fathers came up with the interest-free-mortgage concept.
As Evansdale development director Robert McLaury explains it, the city in effect guarantees the builder his money but faces little risk itself in the process. The city would begin to get its property tax revenue back and could afford to defer its land and down-payment share of the costs until the last years of the mortgage. Though the builder would have the benefit of the initial down payment to cover his immediate costs, he is the one who carries the bulk of the financing burden, according to Mr. McLaury. He says the current economic climate makes builders and developers more ready and eager to cooperate in such a venture than they might otherwise be.
The reaction from townspeople since the City Council first discussed the idea at a public meeting in late September has been mostly enthusiastic. One or two residents raised questions at the meeting on whether or not the city should be in the real-estate business and what effect the plan might have on existing home sales. But the City Council gave a unanimous vote to go ahead with research and preparation of contracts.
''I think from a philosophical view, any city could do this if it wanted to take some money, buy land, and put it into this kind of deferred-payment program ,'' says McLaury. ''This type of thing goes on with large developers sitting on land in large cities. It's just that the city itself doesn't usually get involved.''