Individual Development Accounts (IDAs): An Asset-Building Approach to Homeownership

Originally developed in the early 1990s, Individual Development Accounts (IDAs) are targeted matched savings accounts designed to help low-income people build assets. Typically carried out by community groups in partnership with participating financial institutions, IDAs match every dollar saved by an account holder with money provided by community development organizations, community or faith-based groups, foundations, employers, and often, local governments.

In addition to presenting low-income account holders with the opportunity to accumulate wealth, IDAs can also address community priorities, such as homeownership or employment. The organizations and agencies that offer IDAs often restrict the use of the savings, stipulating that funds must be put toward goals such as purchasing a home, obtaining job training, or starting a business. For potential homebuyers, IDA funds might be used for a downpayment or as a source of debt service assistance.

Over time, IDAs have proven to be an important alternative to other, more risky, methods of assisting low-income homebuyers; e.g., extremely relaxed underwriting criteria and deferred-payment second mortgages that bridge downpayment gaps. Importantly, IDAs work to reinforce the ongoing obligations of homeownership. IDAs also encourage participating households to reduce consumption in favor of savings, while simultaneously enabling them to accumulate wealth from the outset of their participation in the program. Beyond the benefits of homeownership, the accumulation of wealth, itself, has been linked to family stability and physical health, according to the Center for Social Development (CSD).

In order to generate IDA matching funds, local providers and states offering IDA programs are drawing on public funding in new ways. Examples include using the Earned Income Tax Credit funds (Tulsa, Oklahoma), surplus TANF funds (several states), and state tax credits to private donors (Indiana).

The use of IDA programs to help low-income households accumulate the resources to become self-sufficient has mushroomed over the past decade. As of August 2000, 29 states have passed IDA legislation, and several other states have introduced, or plan to introduce, IDA legislation. In addition, there are over 400 community-based IDA programs estimated to be currently operational or in the planning stages. In the American Dream Demonstration, a large study of IDAs conducted by the Corporation for Enterprise Development, 24 percent of IDA withdrawals were for home purchases (June 2000). In addition, 57 percent of account holders who had not yet withdrawn funds intended to use them for homeownership.

For more information on IDAs, consult these online resources:

• Corporation for Enterprise Development (CFED) - This website and its associated eList provide the latest in news and technical assistance to IDA programs everywhere. A valuable resource for all IDA program operators.
• Center for Social Development (CSD) - This site is a rich source of information and research on IDAs and their impact on the well-being of disadvantaged communities.
• Center for Policy Alternatives (CPA) - This resource for state governments and other policy stakeholders offers model IDA legislation, a state-by-state look at IDA programs, and other resources.
• National Federation of Community Development Credit Unions (NFCDCU) - This website contains information about CDCUs, credit union IDA activity, available resources, and technical assistance.
• The Welfare information Network - This clearinghouse of information and technical assistance resources includes updates on legislation and policy initiatives related to IDAs.