The share of small mortgage deals is a fraction of what it was a decade ago, a Realtor.com® Study found. But changes could be coming.
Small mortgage loans under $100,000 account for just 2.3% of the total this year, according to a Realtor.com study, down from 2.7% in 2025 and 3.1% in 2024. That’s a far cry from when small mortgages made up 9.9% of the market in 2016. The steady decline comes amid a rise in property prices.
But this year brings hope in a new program created as part of the 21st Century Road to Housing Act. The nine banking regulations designed to make it easier to get a mortgage include a four-year pilot program to promote small mortgages.
Senior Economist at Realtor.com Joel Berner says the move could change things. The Federal Housing Administration will oversee the program, which provides direct payments to lenders, adjusted loan terms and loans for closing costs. The goal is to increase lender participation.
The bill also directs the Consumer Financial Protection Bureau to study how lenders’ compensation structures, points, and fees affect the availability of small-dollar mortgages. However, the bill does not fund the programs; that will appear in future congressional legislation.
“The dwindling share of small mortgage loans and the premiums charged for them demonstrate the tensions in the market that the 21st Century Road to Housing Act seeks to address,” Berner writes in the report. “The data suggests that lenders have reservations about taking out these loans, making them difficult and costly for buyers to obtain.”
Insights
There is no doubt that rising house prices have something to do with the decline in small mortgage loans. However, these loans shrink faster than cheap home sales. In 2013, home sales under $150,000 accounted for 36.7% of home purchases, and now they are 8.8%. Mortgages under $100,000 fell from 12.9% in 2013 to 2.3% during that period.
“This suggests that fewer small-dollar mortgages have been taken out in recent years than low-cost home sales suggest, and that these structural frictions in small-dollar lending have become more pronounced since the (COVID-19) pandemic,” the report said.
Smaller mortgages are concentrated in smaller states, which tend to have lower list prices. And for the most part, they are concentrated in rural areas, the report says.
Iowa has the largest share of homes with small mortgages at 9.6%. The median list price is $282,886. Wyoming ranks second with an 8.6% share of small mortgages. Mississippi, West Virginia and New Mexico round out the top five with 8.5%, 8.2% and 7.7%, respectively.
Smaller mortgages are typically used for investment properties. These purchases account for 6.3% of total mortgages this year, but 20% of loans under $100,000. So encouraging more low-volume mortgages could lead to more fix-and-flips.
The average purchase price for mortgages with loan balances under $100,000 is $109,681 this year, compared to $89,676 in 2013. Small mortgage purchases typically require larger down payments as a percentage of the purchase price than typical homes. And buyers tend to have slightly better credit than the average American, Realtor.com has found.
Competitive world
Bankers believe the one- to four-family home mortgage business is the most competitive business in which they operate.
A Opinion poll A survey of 330 banks under $10 billion conducted by the Conference of State Bank Supervisors found that nearly 80% of bankers face strong or very strong competition for one- to four-family mortgages. Other community banks, credit unions and regional banks make this market more competitive than many other lines of business.
Net interest margins represented the largest external risks for their banks, and technology and financing costs were also of great importance to them. And these worries outweigh the economic uncertainty, Thomas Siemschief economist at CSBS said Tuesday at the Community Banking Research Conference in St. Louis.
According to Freddie Mac, the average interest rate on 30-year fixed-term home loans rose to 7.28% last week. This is the highest value since 2023.
But bankers are less worried about regulatory burdens than before. Only 62% said regulation was an extremely or very important external risk, compared to 75% last year and 89% in 2024, when they had far more concerns, Siems said.
Pushing for new rules
This year, Congress addressed amending and repealing banking rules in the Dodd-Frank Act and the Basel III Accords. Republicans say they drove smaller banks out of the real estate market. Banking leaders expect smaller, community-focused banks will be more interested in smaller loans in the local area.
Federal Reserve Vice Chairman for Supervision Michelle Bowman is convinced that modernizing the regulatory and supervisory framework for banks is helpful. The Fed is changing and simplifying its rules, Bowman said on Tuesday at the conference in St. Louis.
“Bank regulation and supervision must be appropriately tailored, calibrated and updated over time,” Bowman said. “Each standard reflects a policy decision at a particular point in time. But over time, without adjustment, policy judgment is replaced by miscalibration.”
Rep. French hill (R-AR), chairman of the House Financial Services Committee, said he fought to include the banking provisions in the housing bill. They faced opposition from both sides of the aisle, with some members of Congress concerned about deregulation and others concerned about unfunded mandates.
Hill, one of its architects, said “there is a lot more to do” to support the housing finance sector.
According to data from the Financial Stability Oversight Council, banks were responsible for about 60% of mortgages in 2008 and had rights to use about 95% of mortgage balances. In 2023, banks only originated 35% of mortgages and serviced around 45% of balances.
“We wanted to send the message,” Hill said at a U.S. Chamber of Commerce conference in D.C. late last month. “You talk about increasing housing supply being critical. Well, funding is part of that.”