HOMEfires - Vol. 1 No. 8, July 1, 1998

Q: What is an Individual Development Account (IDA)? And can HOME funds be used for them when buying a home is the goal?

A: Individual Development Accounts are savings accounts which provide a way to accumulate the necessary cash to meet an important life goal -- for education, start up capital for a small business, or a downpayment for a home. These funds are often matched by foundation grants, employer contributions and public funds. The account holder often participates in courses to learn how to manage their finances more effectively.

HOME Program funds may be used as a source of matching funds to an IDA when the objective is purchasing a home and the account holder is income eligible i.e. at or below 80% of area median income. Following the requirements at 24 CFR 92.254 (http://edocket.access.gpo.gov/cfr_2004/aprqtr/24cfr92.254.htm), a State or local participating jurisdiction may choose to use their HOME funds in this way as a variation on a downpayment and closing cost program. Since statutorily HOME funds must be invested in affordable housing within 15 days of drawdown from the Treasury, a participating jurisdiction would commit HOME funds to an eligible homebuyer at the inception of the IDA but would make the HOME funds available at the time the homebuyer was ready to purchase a home. The promise of matching funds using HOME would be fulfilled at the point that the homebuyer had saved the necessary amount and was ready to purchase a home. At that point, HOME funds would be disbursed to effect the sale.

The uniqueness of IDAs is that they help to motivate people to save to own a home. Matching financial support through public, foundation and employer assistance reinforces the motivation to personally save. Credit and homebuyer counseling provides real tools to ensure the goal of homeownership is achieved and continues successfully in the future. Encouraging local lender participation in the IDA program will be critical as they provide first mortgages to families who have successfully reached their IDA savings goals. Local lenders will be important partners in this new homeowner initiative.

Individual Development Accounts using HOME funds are one more way that homeownership becomes an attainable goal for lower-income families.

Content Archived: May 19, 2011