The Long-Term Benefits of Buying a Home Through an Individual Development Account
Editor’s note: For many American households, buying a home represents one of their largest lifetime expenditures. And because most homeowners finance their home purchase with a mortgage, buying a home is also one of their largest sources of debt. In Mortgage Modifications after the Great Recession, a report by JPMorgan Chase & Co., researchers found that default followed shortly after a negative income shock regardless of income level, mortgage payment amount or the amount owed on the home.
At Prosperity Now, we are thinking strategically about how new homeowners can save for a loss of income or unexpected payment. Building on the structure of Individual Development Accounts (IDAs), we developed Mortgage Reserve Accounts (MRAs). MRAs are a matched savings account to enable low-income families to save towards a targeted amount. They are similar to IDAs, which work as matched savings accounts that supplement the savings of low-income households with matching funds drawn from a variety of private and public sources.
Today one of our partners, Portland Housing Center, elaborates on how they are capitalizing on the success of their IDA program to implement an MRA program.
Individual Development Accounts (IDAs) are essential to make homeownership affordable for the communities we serve. IDAs are part of a matched savings program sponsored by the state of Oregon for moderate income (80% AMI and below) households to build assets through savings. For every dollar saved, participants receive $3 in match funds up to $3,000 per year.
Homeowners who have purchased through Oregon’s IDA savings programs experience a myriad of long-term benefits. A year after graduating from the IDA program, 71% of savers report that they are using a budget and are confident in balancing expenses with income. Homeowners are keeping up with their mortgages—98% report they have not missed a monthly payment. An additional 59% report using automatic savings to continue the habit of saving to build assets.
We see these outcomes reflected in our own clients at Portland Housing Center as well. Since it was started in 2003, the IDA program at Portland Housing Center has served over 1,500 Oregonians through IDA funding and financial education. Despite the median home price of $424,800 in the Portland metropolitan area (according to Zillow data from January 2019), we helped 81 IDA savers purchase a home through financial counseling and savings in 2018.
We also see our savers continuing their habits post purchase and are utilizing their new skill sets to pursue long-term goals. After opening her IDA account with Portland Housing center in 2018, IDA client Nazareth Gazai is now working with her son to help him start his own education IDA, instilling the importance of building strong savings habits in future generations. Naz reflects on her time in the IDA program saying, “The IDA program will give me and my kids the opportunity of a lifetime. Homeownership will give us greater stability and help my kids understand the value of owning your own home.”
We continue to expand our programs and services to meet the needs of our clients and help community members create financial resilience and build assets, even after purchasing their homes.
Since its inception in January of this year in partnership with Prosperity Now, the Portland Housing Center’s mortgage reserve account program, “Boost,” has assisted 19 first time homebuyers, with over 70 households estimated to complete the program by the end of the year. Successful participants in the Boost program receive a $200 match after having successfully saved at least $200. Prior to participating in this program, some of our purchasers expressed not having an active or open personal savings account and that being a part of this program encouraged them to continue in their saving.
Most of the Boost program participants are previous IDA clients, have less than $400 in savings and are very familiar with asset building and understand the value of savings. So far, 95% of the program participants saw this program as an incentive to continue the habit of saving while financing a new home and its many expenses. It is our hope that participants will see many of the long-term benefits that come with increased savings—mainly the ability to weather unexpected expenses and ultimately maintain their homeownership as one of the biggest drivers of their wealth accumulation.
Join the Affordable Homeownership Network to learn more about matched savings and financial capability services integration and the work Prosperity Now is doing to make homeownership affordable for everyone.