The Vanishing Small Mortgage—and How It’s Shutting Out Rural and Working-Class Buyers

Morisa Ivory’s path to homeownership began the moment her rent jumped from $700 to $1,000 a month. With four kids and no room to spare, she decided she had to try buying a home, even if the process felt daunting. Her budget was modest: starting around $40,000 and eventually stretching to $90,000 as her income grew.

“I knew the rent wasn’t gonna go down. … I had no other choice but to take that risk,” she told News 5 Cleveland.

For two years, she toured dozens of homes and submitted application after application, but no luck. It wasn’t that she wasn’t finding affordable homes. The problem was the mortgage.

Ivory kept getting denied at “a very sensitive spot. And no explanation.” What would look like an affordability win on paper would quickly turn into an impossible purchase once she tried to secure financing.

She isn’t alone.

Consumer advocates have been warning that small-dollar mortgages—loosely defined as loans of $100,000 or less—are disappearing, even as low-cost homes remain available in the midst of a wider affordability crisis. That mismatch is increasingly shutting out rural, low-income, and working-class buyers, while cash-heavy investors snap up the properties they can’t finance.

There are $100K houses, but good luck getting a mortgage

It sounds like a pipe dream: a home priced under $100,000. But they do exist. Right now, there are just under 50,000 of them for sale across the country, according to Realtor.com® data.

By all logic, these should be the most accessible homes in America, sitting well under the national median home price of roughly $420,000. But instead, they are some of the hardest to buy.

In 2022, 13.1% of all U.S. home sales were for homes under $100,000, yet only one-third of these purchases used a mortgage, according to research from the Urban Institute. For homes priced above $100,000, more than 80% were financed. 

The Federal Reserve Bank of Cleveland reports similar findings: In rural counties, as many as 40% of mortgages originated are under $100,000, but lenders are increasingly reluctant to issue them at all.

Why small mortgages are so hard to get

So why are these mortgages so hard to secure? Small-dollar home loans face three structural barriers, all of them baked into how the housing finance system works.

First and foremost, lenders lose money on them. 

A $60,000 mortgage requires virtually the same underwriting, compliance checks, disclosures, and servicing as a $300,000 mortgage. The Cleveland Fed notes that these fixed costs make small loans unappealing for profit-driven lenders: same work, drastically lower revenue. Loan officers also earn less on them, further shrinking the incentive.

Secondly, they don’t fit the secondary market.

Even lenders willing to originate small loans often can’t sell them to Fannie Mae or Freddie Mac. These mortgages frequently fail to meet the volume thresholds or pooling requirements needed for securitization, which means they can’t be bundled and sold on the secondary market. Without that outlet, lenders are forced to keep these loans on their own books—tying up capital and increasing their risk. For many institutions, that alone is enough to make small-dollar mortgages a nonstarter.

And while nonprofit and community lenders have stepped in to fill this gap, their reach is tiny compared with national demand.

Lastly, the homes themselves often can’t pass an appraisal. Urban Institute research shows small-loan applications face much higher denial rates, with property condition playing a disproportionately large role.

Investors are outbidding for affordable housing at scale

But there is a segment of buyer who is able to take advantage of this deeply affordable housing without the trials and tribulations of financing: investors.

“We know from previous research that investors tend to buy homes well below the median in affordable markets, and it's reasonable to assume that many do so without a mortgage,” explains Realtor.com senior economist Joel Berner. “Cash payments are often preferable to sellers, especially in this price range since buyers trying to take out very small mortgages often meet more hurdles to secure financing.”

So buyers struggling to secure a $60,000 or $80,000 loan aren’t just up against stricter underwriting—they’re up against buyers who can skip the appraisal, don't have to work with a bank, and can close in a matter of days.

“This makes it more difficult for buyers to land homes under $100K when there is competition from investors on top of their existing financing challenges. Ultimately, once the investors are done with the property, they often list it for much more than $100K too,” Berner adds.

The data backs it up. Investor activity is concentrated in the very same regions where sub-$100,000 homes are most common. Realtor.com data shows that nearly 46% of listings under $100,000 are in the South and an additional 38% are in the Midwest—regions that are also home to all 10 of the top investor markets in the latest Investor Report.

And in many major metros, investors are systematically buying at price points far below what typical buyers can access. In Detroit, the median investor purchase is just $106,000, compared with a $252,000 median purchase for everyone else. The pattern repeats in Cleveland, where investors buy around a median of $113,000, while other buyers land closer to $233,000.

Why small mortgages matter for the housing crisis

The vanishing small mortgage might seem like a small problem amid a housing crisis that is hitting buyers, renters, and homeowners across the country hard. But it has larger implications for the American economy as a whole.

Small-dollar mortgages are a critical entry point to homeownership for working-class, rural, and lower-income Americans. They are one of the few remaining on-ramps to wealth building in places where incomes are low, savings are thin, and housing stock is older and cheaper. Without these loans, entire communities lose access to the most reliable pathway into the middle class: owning a modest home at a modest price.

So while small mortgages may be the least profitable loans in the system, they’re among the most important for the country’s long-term housing stability and economic mobility.

Ivory’s story shows exactly what’s at stake. After two years of searching, repeated denials, and dozens of homes that slipped away at the last minute, she finally found a lender willing to work with her. Through a below-market program run by CHN, she purchased a three-bedroom home in Lorain, OH, for $30,000, with a loan just over $29,000.

It wasn’t the dream house she once pictured—no porch, no basement—but it offered something far more meaningful: a backyard her kids can run in, stairs they race up and down, and walls where their artwork finally belongs to them.

Looking back on the years of instability and uncertainty, she puts it simply: “The risk was worth it.”