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B3-4.2-03, Individual Development Accounts (02/06/2019)

Introduction
This topic contains information on individual development accounts, including:

Individual Development Accounts

Some nonprofit agencies will match the funds a borrower regularly deposits into a savings account that has been designated as an account that is used solely for the accumulation of funds to purchase a home. Such accounts are referred to as individual development accounts, or IDAs.

Nonprofit agencies that offer IDA programs have options with respect to accumulating and holding the matching funds, which include:

  • the use of a parallel “savings” account that is separate from the homebuyer’s savings account;

  • separately designated matching funds within a single agency account via accounting processes to allocate matching funds to a particular homebuyer; and

  • the use of a trustee account that contains both the homebuyer’s funds and the agency’s matching funds.

When a homebuyer reaches the target amount and is ready to complete the home purchase, the funds are disbursed from the nonprofit agency account to the closing agent via a single check or multiple checks.

If the agency’s matching funds are held in an account that is separate from the homebuyer’s account, the matching funds need not be commingled with the homebuyer’s funds prior to disbursement to the closing agent. It is acceptable to allow the separate disbursement of funds from the agency and from the homebuyer, as long as the terms of the IDA program are met.

Funds that the borrower deposited into an IDA may be used for either closing costs or the down payment.

Use of IDA Funds to Meet Borrower Minimum Contribution Requirements

Funds that the borrower deposited into an IDA may be used for either the closing costs or the down payment. Depending on the repayment terms of the IDA program, the borrower may or may not be required to meet the minimum down payment requirements from their own funds, as outlined below:

IDA Repayment Terms Allowable Use of Matching Funds

The nonprofit agency

  • requires repayment of the matching funds,

  • agrees to defer or forgive repayment provided that certain conditions are met, or

  • files a lien against the property.

The borrower may use the matching funds to supplement the down payment provided they have met the minimum borrower contribution requirements.

The minimum borrower contribution must come from the borrower's own funds unless:

The nonprofit agency

  • does not require repayment of the matching funds and

  • does not file a lien against the property.

 The borrower may use the matching funds for some or all of the down payment without first being required to meet the minimum borrower contribution requirement from their own funds.

Lender Checklist for IDAs

The lender must ensure that all of the following requirements for an IDA are satisfied:

✓ Lender Checklist for IDAs
  Document how the nonprofit agency’s IDA program operates.
  Verify the rate at which the agency matches borrower deposits into the account.
  Determine that the borrower satisfied the program’s vesting requirements.
  Document the borrower’s regular payments into the account and the agency’s regular deposits of matching funds into the account.
Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SEL-2019-01 February 06, 2019

 

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