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 home buyer’s savings account;
separately designated matching funds within a single agency account via accounting processes to allocate matching funds to a particular home buyer; and
the use of a trustee account that contains both the home buyer’s funds and the agency’s matching funds.
When a home buyer 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 home buyer’s account, the matching funds need not be commingled with the home buyer’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 home buyer, 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.
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 his or her own funds, as outlined below:
|IDA Repayment Terms||Allowable Use of Matching Funds|
The nonprofit agency
The borrower may use the matching funds to supplement the down payment provided he or she has met the minimum borrower contribution requirements.
The minimum borrower contribution must come from the borrower's own funds unless:
The nonprofit agency
|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 his or her own funds.|
Note: If the IDA program includes provisions for a second mortgage that will be sold to Fannie Mae, the lender must have a negotiated contract for the sale of said second mortgage and the second mortgage must be in compliance with the requirements set forth in the negotiated contract.
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.|
The table below provides references to the Announcements that have been issued that are related to this topic.
|Announcement SEL–2010–16||December 1, 2010|