Mortgages Under $100K Are Vanishing—but a New Federal Push Aims To Bring Them Back

The share of small-mortgage deals is just a fraction of what it was a decade ago, a Realtor.com® study found. But changes could be on the way.

Small-mortgage loans of under $100,000 account for just 2.3% of the total this year, according to Realtor.com research, a drop from 2.7% in 2025 and 3.1% in 2024. It's a far cry from when small mortgages were 9.9% of the market in 2016. The steady decline comes amid a surge in home prices.

This year brings hope, though, in a new program created in the 21st Century Road to Housing Act. Among nine banking provisions aimed at making it easier to get a mortgage is a four-year pilot program to encourage small mortgages.

Realtor.com senior economist Joel Berner says that the move could change things. The Federal Housing Administration will oversee the program, which offers direct payments to lenders, adjusted loan terms, and loans for closing costs. The goal is more lender participation.

The bill also taps the Consumer Financial Protection Bureau to study how loan originator compensation structures, points, and fees combine to affect the availability of small-dollar mortgages. The bill doesn't fund the programs, though; that comes in future congressional acts.

"The dwindling share of small mortgages being originated and the premium rates being charged for them demonstrate the frictions in the market that the 21st Century Road to Housing Act sets out to address," Berner writes in the report. "Data suggest that lenders have reservations about writing these loans, making them difficult and costly to obtain for buyers."

Findings

There's no doubt rising home costs have something to do with the decline in small-mortgage loans. But, these loans are shrinking more quickly than inexpensive home sales. In 2013, home sales under $150,000 made up 36.7% of home buys, and now they're 8.8%. Mortgages under $100,000 fell from 12.9% in 2013 to 2.3% in that time.

"This suggests that there are fewer small-dollar mortgages being written in recent years than sales of low-priced homes would suggest and that those structural frictions in originating small loans have become more pronounced since the [COVID-19] pandemic," states the report.

Small mortgages are concentrated in smaller states that tend to have lower listing prices. And for the most part, they are concentrated in rural areas, according to the report.

Iowa enjoys the largest share of small-mortgage homes at 9.6%. Its median listing price is $282,886. Wyoming comes in second with an 8.6% small-mortgage share. Mississippi, West Virginia, and New Mexico round out the top five, with 8.5%, 8.2%, and 7.7%, respectively.

Small mortgages tend to be used for investment properties. These purchases account for 6.3% of mortgages overall, but 20% of the loans under $100,000 this year. So, encouraging more small-value mortgage loans could encourage more fix-and-flips.

The median purchase price among mortgages issued with loan balances under $100,000 is $109,681 this year, compared to $89,676 in 2013. Small-mortgage purchases tend to have higher down payments as a percentage of purchase price than the typical home. And the buyers typically have slightly better credit scores than the average American, Realtor.com found.

Competitive world

Bankers think the one- to four-family mortgage business is the most competitive thing they do.

A survey of 330 banks under $10 billion by the Conference of State Bank Supervisors found that nearly 80% of bankers face high or very high competition for one- to four-family mortgages. Other community banks, credit unions, and regional banks make that market more competitive than many other business lines.

Net interest margins were the top external risks to their banks, with cost of technology and cost of funds also high on their worries. And those worries trump economic uncertainty, Thomas Siems, chief economist at CSBS, said at the Community Banking Research Conference in St. Louis on Tuesday.

Last week, the average rate on 30-year fixed home loans rose to 7.28%, according to Freddie Mac. That's the highest it's been since 2023.

But bankers are less concerned with regulatory burdens than they used to. Just 62% identified regulation as an extremely or very important external risk, down from 75% last year and 89% in 2024, when it was far higher on their concerns, Siems said.

Urge for new rules

This year Congress looked at changing and rescinding banking rules in the Dodd-Frank Act and the Basel III accord. Republicans say they've chased smaller banks out of the housing market. Banking leaders think smaller, community-oriented banks will have more appetite for smaller loans closer to home.

Federal Reserve Vice Chair for Supervision Michelle Bowman believes modernization of the banking regulatory and supervisory framework is helping. The Fed is changing and simplifying rules, Bowman said at the St. Louis conference on Tuesday.

"Bank regulation and supervision must be appropriately tailored, calibrated, and updated over time," Bowman said. "Every standard reflects a policy decision at a particular point in time. But over time, without adjustment, policy judgment is replaced by a miscalibration."

Rep. French Hill (R-AR), chair of the House Financial Services Committee, said he fought to include the banking provisions in the housing bill. They encountered resistance from both sides of the aisle, with some members of Congress concerned with deregulation, and others with unfunded mandates.

Hill, one of its architects, said "there is a lot more to do" to aid the housing finance sector.

Banks originated about 60% of mortgages and held servicing rights to about 95% of mortgage balances in 2008, according to data from the Financial Stability Oversight Council. By 2023, banks originated just 35% of mortgages and serviced about 45% of balances.

"We wanted to send the message," Hill said at a U.S. Chamber of Commerce conference in DC late last month. "You're talking increasing housing supply is critical. Well, finance is part of that."