Small-Dollar Mortgages Keep Shrinking Despite New Federal Pilot

Mortgages of $100,000 or less keep getting rarer, according to Realtor.com research published Oct. 7, 2026. Such loans made up more than 12% of originations in 2013 and 2014, but less than 3% in 2025 and so far in 2026.

Why this matters: Buyers shopping for lower-priced homes, often in rural areas and small towns, can struggle to find a lender willing to make a small loan. A new federal law aims to change that, but its main pilot program is still optional and not yet in place.

Cover: a modest small-town house beside loan paperwork and shrinking bars. Illustration created for mortgage.news; it does not depict a real person, property or document.

Where small loans still matter

Realtor.com found small mortgages made up 7.7% of loans issued in rural zip codes in 2025, versus 2.4% in urban and 2.3% in suburban zip codes. Iowa had the highest state share at 9.6%.

Small loans are also more likely to finance investors. In 2026, 20.0% of loans under $100,000 were for investment properties, compared with 6.3% of mortgages of any size, the report said.

Why lenders shy away

Many costs of making a mortgage, such as underwriting, appraisal and compliance work, are similar whether the loan is $60,000 or $600,000. On a small loan, those fixed costs eat a larger share of revenue.

Federal rules also cap points and fees on Qualified Mortgages. Realtor.com notes the caps limit how much a lender can charge on a $60,000 to $100,000 loan. Lenders can still offer non-QM loans with higher fees, but those carry different legal protections.

What the July law does

The 21st Century ROAD to Housing Act, Public Law 119-101, signed July 11, 2026, defines a small-dollar mortgage as one with an original balance of $100,000 or less on a 1- to 4-unit primary residence. Section 105 says HUD "may establish" an FHA pilot within one year. The pilot could include payments to lenders, adjusted FHA terms, grants for down payment and closing costs, outreach and technical help. It would end four years after it starts.

Sections 401 and 402 direct studies of loan officer pay and points-and-fees limits for small loans. Other sections address FHA appraiser standards and appraisal reconsideration requests.

Realtor.com notes that rising home prices, not only lender costs, explain much of the decline. Fewer homes are cheap enough to need a small loan.

Practical takeaway

For buyers in lower-priced markets: ask several lenders, including community banks and credit unions, whether they make loans under $100,000. For loan officers: the pilot is authorized, not launched. Watch for HUD guidance before telling borrowers any new incentive exists.