Federal Pilot Targets the Disappearing Mortgage Under $100,000

A four-year federal pilot will target small home loans

The 21st Century Road to Housing Act has created a four-year pilot program intended to make mortgages under $100,000 more practical for lenders. The Federal Housing Administration will oversee the effort, which can use direct lender payments, modified loan terms and financing for closing costs to encourage more institutions to offer small loans.

The intervention addresses a market that has been shrinking for years. Mortgages below $100,000 represent only 2.3% of home loans in 2026, according to Realtor.com research. Their share was 2.7% in 2025, 3.1% in 2024 and 9.9% in 2016.

Higher home prices explain part of that decline, but not all of it. Homes selling for less than $150,000 fell from 36.7% of purchases in 2013 to 8.8% now. Over the same period, mortgages under $100,000 dropped from 12.9% to 2.3%. In other words, low-priced sales have become less common, while small mortgages have disappeared even faster.

The pilot is not an immediate fix. Congress has established the program but has not yet funded it. Future appropriations will determine how much support becomes available and how broadly lenders participate. Sellers should view this as a possible improvement in financing access, not as a loan product buyers can necessarily obtain today.

Small loans can be uneconomical even for qualified buyers

For sellers, the important point is that an affordable price does not automatically produce easy financing. Mortgage lenders perform many of the same compliance, underwriting, appraisal and servicing tasks on a $75,000 loan as they do on a much larger one. Because the lender earns less from the smaller balance, the economics can be unattractive.

That friction can affect buyers who otherwise look strong. Realtor.com found that borrowers using small mortgages generally have slightly better credit than the average American and make larger percentage down payments than typical purchasers. The median purchase price associated with mortgages below $100,000 is $109,681 in 2026, up from $89,676 in 2013.

Interest rates add another constraint. A recent Freddie Mac reading put the average 30-year fixed mortgage rate at 7.28%, its highest level since 2023. On a modestly priced property, closing costs and lender fees can also represent a larger share of the buyer's total budget. A purchaser may be able to handle the monthly payment but still struggle to find a lender willing to originate the loan on workable terms.

This is especially relevant in rural communities and lower-priced states. Small mortgages account for 9.6% of loans in Iowa, followed by 8.6% in Wyoming, 8.5% in Mississippi, 8.2% in West Virginia and 7.7% in New Mexico. Sellers in those markets are more exposed to the financing gap than owners in expensive metropolitan areas.

Sellers should test financing before choosing an offer

A preapproval letter is useful, but sellers of lower-priced homes should look beyond the headline loan amount. The buyer should confirm that the named lender actually offers mortgages at the required balance. Some institutions may technically permit small loans while applying minimum fees, pricing adjustments or other terms that make the transaction impractical.

Sellers and their agents should also ask whether the approval depends on a specific appraisal result, property condition or closing-cost structure. Older homes commonly need repairs that matter to FHA or other financed buyers. When the loan is already difficult to place, an appraisal issue or required repair can leave little room to restructure the deal.

Offer comparisons should account for execution risk rather than focusing only on price. A slightly higher financed offer is not automatically better if the lender has not confirmed its willingness to make a small-dollar mortgage. Conversely, a cash offer should not receive a large discount merely because financing looks inconvenient. The right comparison includes net proceeds, inspection terms, repair requests, financing confidence and the buyer's proposed closing schedule.

Seller concessions may help with a buyer's closing costs, but they need to be evaluated carefully. A concession reduces the seller's net proceeds and cannot solve a lender's unwillingness to originate the loan. Before accepting one, sellers should obtain a clear estimate showing how the concession changes both the buyer's cash requirement and the seller's bottom line.

Pricing also matters. Setting an ambitious list price and then making repeated reductions can create appraisal problems without addressing the underlying financing shortage. Sellers should use recent comparable sales, estimate likely buyer loan amounts and identify local banks or credit unions active in this price range before going to market. That preparation can reveal whether the likely audience is owner-occupants, cash buyers or investors.

The pilot could widen demand, but investors may benefit too

If funded and implemented effectively, the FHA pilot could give community banks, regional banks and credit unions more reason to write small mortgages. The legislation also directs the Consumer Financial Protection Bureau to study how loan-officer compensation, points and fees affect small-loan availability. Those steps could eventually bring more financed owner-occupants into lower-priced markets.

Sellers should not assume every new borrower will be purchasing a primary residence. Investment properties account for 20% of mortgages under $100,000 in 2026, compared with 6.3% of mortgages overall. Better access to small loans could therefore increase competition from landlords and renovation investors as well as traditional buyers.

The practical seller takeaway is to plan for today's financing market while watching the federal rollout. Until funding, lender incentives and loan terms are in place, a low asking price can still produce a narrow financed-buyer pool. Owners weighing a traditional listing against an as-is sale can use an instant-offer estimate as one benchmark, but every option should be compared on net proceeds, conditions and certainty rather than price alone.