Should First-Time Buyers Be Able to Buy a Home With Just $1,000 Down?

Short Answer: The goal is right, but the version on the table starts buyers underwater, prices the extra risk in the wrong place, and could push up starter-home prices in tight markets like ours. A narrower, risk-priced pilot makes sense. The proposal as written does not.

This week Lael Brainard, who ran the National Economic Council under President Biden, floated a new FHA program through the Kitchen Table Project, a policy group she chairs, that would let qualifying first-time buyers purchase a home with only $1,000 down. Understandably, her proposal has generated a lot of discussion, and I've already heard from a few brokers asking me what I think. Given the interest, here's my take as an economist who has lived through a few credit cycles in my career!

But I want to be clear up front. The problem Brainard is trying to solve is real, as saving enough for a down payment on a home is the single biggest hurdle I hear about from younger renters. The question isn't whether to help. It's whether this is the right tool and whether it's built safely.

What Is Being Proposed?

The mechanics of Dr. Brainard’s plan are fairly simple:

• A $1,000 down payment: Qualifying first-time buyers could use an FHA loan with a $1,000 down payment instead of today's 3.5% minimum.

• A higher upfront premium: FHA's upfront mortgage insurance premium would rise from 1.75% to about 2.05%, and most borrowers would roll it into the loan.

• Underwriting guardrails: Borrowers would need a credit score of at least 660 and total monthly debt payments below 50% of income.

  
  

Central to Brainard’s proposal is that she argues the program would cost taxpayers nothing because the higher premium pays for the added risk.

What the Proposal Gets Right

1. The FHA can afford to experiment. FHA’s Mutual Mortgage Insurance Fund, the reserve that pays lenders when FHA borrowers default, ended fiscal 2025 with a capital ratio of 11.47%. That means that after setting aside enough to cover expected future losses on every loan it insures, the fund still holds a cushion equal to 11.47% of its insured balances, more than five times the 2% Congress has required since 1990.

   
   

2. This isn't a one-party idea. Proposals such as this are not new. The Bush administration proposed a zero-down FHA loan for first-time buyers in its 2005 budget, and the House Republican Study Committee endorsed a zero-to-low-down FHA option earlier in 2026.

   
   

3. It could replace a messier system. Many FHA buyers already get their 3.5% from state or local assistance programs, often as second loans at higher rates. A single FHA loan is simpler which could make it cheaper for the borrower.

   
   

Where I Have Concerns

1. Buyers start out underwater. You just have to look at the math. On a $400,000 home, a buyer putting $1,000 down and financing the 2.05% upfront premium owes about $407,000 at closing, roughly 102% of the home's value. Once you add typical selling costs, that home needs to appreciate about 9.5% before the owner could sell without writing a check at closing.

Source: Gardner Economics calculations. Assumes 7% total selling costs including taxes, and the upfront FHA premium financed into the loan

Owners who owe more than their home is worth can't simply sell their way out when life changes, so a job loss, divorce, or job transfer is far more likely to end in a short sale or foreclosure. These are young first-time buyers, exactly the group most likely to move within five to seven years.

Remember that we saw this play out when the housing bubble burst. According to CoreLogic, at the end of 2009 more than 11 million homeowners, roughly one in four with a mortgage, owed more than their homes were worth, and the rise in negative equity tracked the rise in foreclosures.

2. A 50% debt-to-income cap is not strong underwriting. Pairing almost no down payment with a high debt load is classic risk layering. A 2005 Government Accountability Office (GAO) report showed that FHA loans with seller-funded down payment assistance had a default probability that was 76% higher than comparable loans without it.

   
   

Although it is true that VA's zero-down loans perform well, they do so in large part because VA applies a residual-income test which this proposal lacks.

3. Other FHA borrowers would likely pay for it. As described, the plan raises FHA's existing upfront premium from 1.75% to about 2.05%, which reads to me as a charge on every FHA borrower, not just the $1,000-down group. If that is the case, buyers putting 3.5% down would then be subsidizing the riskier loans, and the risk wouldn't be priced where it sits. Alternatively, if the higher premium were limited to the new loans, a one-time 0.3 percentage point charge would be thin protection against a meaningfully higher default rate.

   
   

4. Demand without supply raises prices. Adding millions of potential buyers chasing a fixed supply of starter homes pushes prices up, which hurts every entry-level buyer, including the ones putting 3.5% down. That said, the suggestion relating to tying eligibility in some areas to measures that encourage home construction is very interesting, but I foresee it being extremely hard to administer should the plan be put in place.

   
   

5. Equity builds slowly. At today's 7.0% average 30-year FHA rate, a buyer would pay down only about 5.9% of the loan balance in the first five years. With almost nothing down, nearly all of an owner's equity has to come from appreciation. If prices go sideways, a short-tenure owner can end up worse off than if they had kept renting.

   
   

6. The claimed reach is overstated. The proposal estimates that about 2.2 million renter households could be brought into the buying market if this program was started. While this makes for a compelling talking point, I think it's overstated. The Kitchen Table Project’s own figures reflect households that might qualify, rather than buyers who will actually close on a home – many of whom would still be priced out by closing costs, tight housing inventory, and steep monthly payments at current interest rates. Furthermore, the 77% approval rating cited from the group's internal survey only gauges public popularity, not economic soundness.

   
   

Wouldn't It Be Easier to Just Build More Homes?

Yes! As I have been saying for years, building more homes is the real fix.

The down payment problem comes from two directions. High prices raise the amount buyers need when they come to the closing table and high rents make saving for a down payment hard. Both trace back to the same shortage of homes. More homes attack the cause, help every buyer rather than just those who qualify for a special loan, and add no risk to FHA's books.

That’s why the order matters: easier credit without more supply mostly pushes up prices. It also makes the Kitchen Table Project’s suggestion to link eligibility to pro-construction measures the part of the plan that deserves the most attention, and not to be left as a footnote.

What This Means for Brokers

Nothing has changed for your buyers today. This is a proposal, not a program, and because FHA’s 3.5% minimum is written into law, it would take an act of Congress to move forward. Still, it's worth understanding because the idea has supporters on both sides of the aisle and could resurface once the new Congress convenes.

The pitch will be compelling. In Puget Sound, 3.5% down on a $600,000 starter home is $21,000. Cutting that to $1,000 would bring a lot of renters off the sidelines. If that happens without a corresponding surge in inventory, expect fierce competition to concentrate directly in the condo and starter-home segments of your markets, driving prices up rather than improving affordability.

The Bottom Line

Making it easier for creditworthy renters to become owners is certainly a worthy goal, and FHA has the capital cushion to test a careful version. That said, the plan as written starts buyers underwater, leans on a debt-to-income cap that is too loose, and risks feeding starter-home prices in supply-constrained markets. Tighten the underwriting, price the risk where it belongs, and test it small before going big. Most of all, pair it with more housing supply. A low-down-payment loan can help buyers get in the door, but only building more homes makes the door affordable. Done that way, I may be able to support it.