An Individual Development Account (IDA) isn’t for everyone. It is typically limited to people making 200% of the federal poverty limit. Depending on the size of the family, it could be a limit of $23,760 for a 1 person household, $48,600 for a 4 person household, or up to $81,780 for an 8 person household (the limits are slightly higher for Alaska and Hawaii). For those that make below these amounts, they can apply from various organizations that offer IDA programs. The list of IDA programs nationwide is found here. Each program has its own rules and matching amounts, but generally the match is between 2:1 and 8:1 and the money must be used for either purchasing a home, starting a business, or completing job training or other post-high school education.
For instance, in Santa Cruz County, Arizona, a non-profit called Nogales Community Development offers a 2:1 match for up to $4000 per year. You could save us much as $2000 per year into a bank or credit union savings account, and they would contribute an additional $4000. You might only make 1% or less in interest, but you just made 200% through the matching program. You suddenly have $6000+ saved to purchase a home. Do that for two years and you have $12,000, which is a substantial down payment for the area (the median home price in Nogales, Arizona is just over $100,000).
These types of programs do typically have some requirements — the income limit being the biggest one. With the Nogales program, you have to complete 12 hours of financial literacy training. You have to contribute a minimum of $25 per month into savings for 6 straight months. If you are buying a home, you have to take a class on homeownership. If you are starting a business, you have to write a business plan. Other programs have limitations on your net worth. For instance, the NeighborWorks Montana program, which features a 4:1 match when you save for a down payment on a house, requires your net worth to be below $10,000. Also, keep in mind that these programs rely on public funding and private donors; when the money is no longer available, they will temporarily close the program to new applicants. Don’t drag your feet or you could miss out on the opportunity.
Many of these programs are specifically targeted to first-time homebuyers. For someone making their living as a Realtor or loan officer, an IDA program can greatly expand their potential pool of buyers, especially when you combine it with low down payment housing programs like FHA loans. For instance, Housing for Nevada, Inc., offers a WISH program that allows someone earning at 80% or less of the Average Median Income to contribute up to $5000 and receive a 3:1 match (up to $15,000). Even someone saving the minimum of $1500 and receive $4500 would have $6000 total available for a home purchase. Combined with an FHA loan requiring only a 3.5% downpayment and a seller willing to pay all closing costs, the saver could potentially be able to purchase up to a $171,000 property.
This would be a great program for a 2 person household where one spouse worked in a relatively low-paying job and the other spouse was finishing up school. They could take advantage of the program while their income was below the threshold, knowing that their income would greatly increase when the spouse completed school and began working. The outstanding rate of return and the safety of having the money parked in an FDIC or NCUA insured savings account, make it a no-brainer.