• Mortgages of $100,000 or less made up less than 3% of U.S. home loans in 2025–26, down from over 12% in 2013–14, according to Realtor.com (NWSA).
  • Lenders' fixed costs make low-balance loans unprofitable to originate, even as creditworthy borrowers face higher rates.
  • New federal legislation aims to address the gap, but no operational launch has been confirmed.

Small Mortgages Are Disappearing Across the U.S.

Small mortgages are becoming an endangered species in the U.S. housing market. Loans of $100,000 or less accounted for less than 3% of all home loans in 2025–26, a sharp decline from more than 12% in 2013–14, according to an October 7 report from Realtor.com. The median purchase price financed with a small mortgage was $109,681 in 2026.

The decline stems from two overlapping forces: a dwindling supply of low-priced homes and persistent barriers that make small loans less attractive for lenders to originate. As of October 7, 2026, the central development is Realtor.com’s new analysis of mortgage originations and lower-cost home sales.

Homes selling for $150,000 or less fell to 8.8% of sales in 2026 from 36.7% in 2013. But the gap between low-priced sales and small-mortgage originations has widened, too. Before the pandemic, low-priced sales were roughly three times small-mortgage originations. In 2025–26, they were nearly four times. That widening spread supports the argument that scarce inexpensive housing alone does not explain the decline.

The Economics of Origination

The core problem is economics. Underwriting, processing, appraisals, and other origination work cost roughly as much for a small mortgage as for a large one, while the smaller loan generates less revenue. Pew’s April 2026 research identifies this imbalance as a major reason lenders avoid or deprioritize small loans.

"The widening financing gap demonstrates the need to address fixed costs," said Joel Berner, senior economist at Realtor.com.

There is little evidence that weaker borrower credit explains the pricing disadvantage. In 2026, small-mortgage purchasers had an average FICO (FICO) score of 737, compared with 736 for buyers overall, yet consistently paid higher mortgage rates—even within owner-occupant purchases. Those averages do not control for every lending risk, but they challenge a simple "riskier borrowers" explanation.

The long-term decline combines three pressures: rising nominal home prices have moved properties above fixed dollar thresholds, origination costs and regulatory requirements can make modest loans unprofitable, and secondary-market access is uneven. Pew found that Fannie Mae (FNMA) and Freddie Mac (FMCC) purchased 47.9% of mortgages below $150,000 during 2018–24, versus 52.7% of larger mortgages. Matching the larger-loan purchase share would have allowed lenders to sell about 70,000 additional small mortgages, releasing $6.7 billion in lending capacity. That is a counterfactual estimate, not a forecast.

Related housing-market constraints persist: Realtor.com reported in July that nearly half of existing homeowners held mortgage rates of 4% or lower, sustaining the "lock-in" incentive to avoid selling and taking on a more expensive loan.

Policy Response and Limitations

The most important policy response is the bipartisan 21st Century ROAD to Housing Act, which became law on July 11, 2026. An August legal analysis identifies several provisions directly relevant to small mortgages.

The law authorizes an FHA small-dollar mortgage pilot that allows lender payments, adjusted FHA terms, borrower closing-cost grants, outreach and technical assistance for loans of $100,000 or less. However, authorization is not proof that the pilot is operating; it sunsets four years after establishment. The law also requires a CFPB study on how loan-originator compensation practices affect availability—though a study does not itself change compensation rules—and includes an evaluation of qualified-mortgage points-and-fees thresholds, plus appraisal reforms to expand capacity and address procedural barriers.

Those provisions address lending costs, while the law’s broader zoning, permitting, infill, and manufactured-housing measures target supply. Both are needed: easier credit cannot create inexpensive homes that do not exist.

"We have a constant balance with the banks, which really we consider our partners and not only our binary competitors," said Cecile Mayer-Levi, head of private debt activity at Tikehau Capital SCA (TKO.PA), speaking broadly about European private credit markets. "It’s much more of a convergence between the two solutions."

That sentiment echoes the collaborative approach some advocates seek for small-mortgage lending.

Rural and Investor Dynamics

Rural communities are especially exposed. In 2025, small loans represented 7.7% of rural mortgage originations, versus 2.4% in urban areas and 2.3% in suburbs. Iowa had the highest state share, at 9.6%, followed by Wyoming, Mississippi, West Virginia, and New Mexico.

Lower-cost buyers face fewer financing choices and potentially higher borrowing costs despite strong credit. Those without substantial cash may be particularly disadvantaged. Buyers using alternative financing—such as land contracts and lease-purchase arrangements—may receive fewer protections than mortgage borrowers. Pew estimated from a 2021 survey that 36 million Americans had used alternative financing to pursue homeownership at least once. That is a lifetime-use estimate, not the current number of affected borrowers.

Community banks and credit unions face secondary-market access constraints. Pew reports that roughly 80% of mortgage lenders are not approved to sell directly to Fannie Mae or Freddie Mac, with smaller institutions facing particular difficulties.

Investors are significant participants: investment properties accounted for 20.0% of small mortgages in 2026, versus 6.3% of mortgages overall. Consequently, expanding small-loan availability would not automatically translate entirely into owner-occupied purchases.

Outlook

In the short term, policy authorization is unlikely to produce an immediate nationwide reversal. The practical questions are whether HUD establishes the FHA pilot, how incentives are designed, which lenders participate, and whether borrowers actually obtain lower-cost financing. The reviewed sources do not confirm an operational launch.

Longer term, the most plausible route to improvement combines lower origination costs, greater secondary-market liquidity, and more inexpensive housing. Berner explicitly argues for addressing lending and supply together; Pew recommends broader seller access to Fannie Mae and Freddie Mac and reconsideration of restrictions on selling seasoned or bulk portfolio loans. These are expert proposals, not assured outcomes.

Manufactured housing is a closely related sector: smaller loan balances and complications around real-estate versus personal-property financing create overlapping access problems. The new law also modernizes manufactured-housing provisions, while Pew has called for stronger financing support in this underserved market.

A final measurement caution: a fixed $100,000 threshold can keep losing market share as prices rise even if lending access improves. Success should therefore be judged not only by that share, but also by financing availability for inexpensive homes, borrower costs, and owner-occupant participation—the underlying problems highlighted by the report.

Correction: An earlier version of this article misstated the median down payment for small-mortgage buyers. It was 34.4%, not 34.4% compared with 14.6% across all purchases. The comparison stands.