Rural Access to Mortgages

Rural Access to Mortgages

Most Americans regard homeownership as a key component of the "American dream," and a mortgage is the vehicle for achieving it.¹ Nearly all first-time homebuyers — 91 percent — and 69 percent of repeat buyers finance their purchases with a mortgage.² Mortgages also offer buyers greater transparency, protections, and legal recourse. For example, federal laws require mortgage lenders to disclose key loan terms, demonstrate good faith in estimating closing costs, and limit certain fees.³

Although rural homeownership rates are higher than those in urban areas, many rural buyers struggle to obtain mortgages.⁴ Homebuyers used mortgages for less than half (43%) of all rural homes sold between 2004 and 2022 compared with two-thirds of homes sold in urban areas during the same period.⁵ Both rural and urban homebuyers who are unable to either obtain a traditional mortgage or buy their house outright face less desirable financing options, and some may be shut out of homeownership entirely. Recently proposed legislation has attempted to address nationwide challenges in obtaining mortgages for lower-cost homes. If passed, these laws would increase access to mortgages and create opportunities for researchers and policymakers to better understand how to foster homeownership in rural America.

Challenges to Obtaining Mortgages in Rural Areas
Differences in loan denial rates are partly to blame for rural buyers’ lower access to mortgages. Between 2004 to 2023, lenders denied approximately 20 percent of completed mortgage applications from rural borrowers compared with 12 percent of applications from urban borrowers over the same period. This gap persisted even after controlling for loan size and debt-to-income ratios.⁶ Mortgage affordability is also a challenge. Many rural communities are small and remote, which limits lender competition and makes high-cost loans, such as those with higher interest rates, more common. In 2022, nearly 10 percent of rural mortgage originations were considered high cost⁷ compared with 6.6 percent of mortgages nationally.⁸

Manufactured homes play an important role in rural markets and exemplify many of these challenges.⁹ Manufactured homes make up 13 percent of all occupied homes in rural communities — nearly double the national rate.¹⁰ Yet 66 percent of all manufactured home loans in 2022 were high cost, which is 10 times the national average for all homes.¹¹ In addition, prospective buyers of manufactured homes face higher denial rates. Lenders denied 54 percent of completed financing applications from buyers purchasing manufactured homes compared with only 7 percent of applications from site-built buyers.¹² Improving financing options for manufactured homes may boost demand for this lower-cost alternative to site-built housing, thereby potentially expanding homeownership opportunities to more rural households.¹³

Scarcity of Small-Dollar Loans
A key challenge for rural homebuyers is the availability of small-dollar loans, which are less than $150,000.¹⁴ Small mortgages help lower-income households afford homeownership, and they play an important role in rural markets, where housing prices are lower. Between 2004 and 2022, the median purchase price for a rural home was lower than that of an urban home ($213,000 and $374,000, respectively), and lower-cost sales made up a larger share of overall transactions in rural areas. Approximately 37 percent of home sales in rural areas were low-cost sales (less than $150,000) compared with 15 percent of sales in urban areas. Low-cost sales were especially common in rural communities within the Great Plains, Midwest, and Southeastern regions of the United States.¹⁵ Small-balance loans also constitute a larger share of mortgage originations in rural areas compared with the overall mortgage market.¹⁶

Small-dollar mortgages, however, have declined in recent years. Between 2004 and 2021, the number of mortgages issued that were valued at less than $150,000 fell by nearly 70 percent nationally, from 2.7 million to 830,000 loans per year, whereas larger mortgage lending (mortgages exceeding $150,000) increased by 52 percent over the same period, from 2.9 million to 4.4 million loans per year.¹⁷ A recent HUD study focusing on mortgages for $70,000 or less found that these very small loans also have decreased over the past decade, from 11 percent to 3.5 percent between 2011 and 2020. The number of small-dollar loans specifically used to purchase low-cost homes may be overestimated because not all small loans were used to purchase low-cost homes. Between 2018 and 2020, only 57 percent of small-dollar originations ($70,000 or less) were used to purchase owner-occupied, lower-priced homes, and the remainder were for homes that cost more than $70,000.¹⁸

The scarcity of small-dollar loans can be explained in part by rising housing prices (particularly during the pandemic, when median housing prices surged), but not entirely.¹⁹ Small-value mortgages can be less profitable, or even unprofitable, for many lenders, because origination and servicing costs are fixed for all loans, and loans with smaller balances do not generate enough revenue to offset these costs.²⁰ Loan origination and servicing costs also have risen over time, making the unprofitability of small-dollar loans harder to overcome. Some research also suggests that mortgage loans for homes priced at less than $100,000 are associated with higher delinquency rates (3% for lower-priced homes compared with 1.6% for more expensive homes), suggesting that these loans may be riskier for lenders.²¹

Nonmortgage Options for Rural Homeowners
Because of these financing challenges, many rural homes are not financed with mortgages.²² Some rural purchasers buy their home outright with cash, although this option is available only for wealthier households and is rarely an option for first-time buyers.²³ In addition, rural households tend to have lower cash savings overall. In 2024, only 48 percent of adults in rural areas reported having access to 3 months’ worth of emergency savings compared with 56 percent of adults in urban areas.²⁴

Other prospective homebuyers are forced to consider alternative methods such as personal property loans, land contracts, lease-to-purchase agreements, and seller-financed mortgages. These financing methods often are associated with higher costs and higher risks. Approximately 12 percent of rural homebuyers use alternative methods to finance their home compared with 8 percent of urban buyers.²⁵ Some prospective buyers may be shut out of homeownership entirely and are forced to compete for rental housing instead.

Policy Solutions and Future Research
In 2022, approximately 25 percent of all lending for rural home purchases was government backed, which is a higher rate than that in suburban and urban areas (22% and 17%, respectively). HUD’s Federal Housing Administration (FHA) backed 13 percent of all rural mortgages, followed by loan guarantees from the U.S. Department of Veterans Affairs (9%), and the U.S. Department of Agriculture’s Rural Development guaranteed lending programs (3%). Government-backed lending has played a larger role in the rural mortgage market, increasing from less than 10 percent in 2005 to 25 percent in 2022.²⁶

FHA insures single-family mortgages with the goal of encouraging lenders to issue loans they otherwise would not make. FHA does not impose minimum loan amounts and, compared with the rest of the market, FHA disproportionately insures loans for lower-priced homes. The composition of FHA-insured loans, however, is limited by the number of loans lenders submit for FHA insurance endorsement as well as by FHA policies, which Congress shapes. For this reason, FHA alone cannot boost the availability of small-dollar loans.²⁷

Recent legislative initiatives have attempted to encourage additional small-dollar mortgages. The ROAD to Housing Act, introduced by Senator Tim Scott from South Carolina in 2024, instructs the director of the Bureau of Consumer Financial Protection, in consultation with HUD, to revise FHA limitations on points and fees to encourage lenders to approve loans of less than $70,000.²⁸ In 2024, Representative Young Kim from California also introduced legislation that aimed to increase the availability of financing for lower-cost homes (Small Dollar Loan Certainty Act, 2024).²⁹

New legislation encouraging small-dollar lending may improve access to mortgages in rural areas. It could also create opportunities for researchers to understand the most effective methods to expand rural homeownership, such as determining which strategies most effectively increase the profitability of low-cost loans while minimizing risks to both borrowers and lenders.³⁰

– Amanda Gold, PD&R, HUD

1. According to a nationally representative survey conducted by Bankrate.com, 82 percent of Americans consider homeownership to be a key component of the American dream. See: Jeff Ostrowski. 2025. "Bankrate’s 2025 Home Affordability Report," Bankrate, 14 May; Bankrate. 2025. "82% Consider Homeownership to be Part of the American Dream," 16 April press release.
2. National Association of REALTORS®. 2022. "Highlights From the Profile of Home Buyers and Sellers."
3. Federal laws regulating mortgages include the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Fair Housing Act, the Equal Credit Opportunity Act, the Homeowners Protection Act, and the Home Mortgage Disclosure Act.
4. Housing Assistance Council. 2023. "Rural Housing," Taking Stock.
5. Adam Staveski. 2024. "Small Mortgages Offer Opportunity to Invest in Rural Communities," Pew Charitable Trusts.
6. Ibid.
7. A high-cost loan is a first lien loan with an interest rate that is at least 1.5 percentage points higher than the interest rate one would receive for a similar prime rate loan. For second lien loans, a high-cost loan has an interest rate of at least 3.5 percentage points more than the interest rate for a similar prime loan. For more information, see: Consumer Financial Protection Bureau. "§ 1026.35 Requirements for higher-priced mortgage loans." (www.consumerfinance.gov/rules-policy/regulations/1026/35/#a).
8. Housing Assistance Council.
9. HUD defines a manufactured home as a structure that is transportable in one or more sections. To be eligible for FHA mortgage insurance, all Manufactured Housing must also meet additional standards, such as being designed as a single-family dwelling; having a floor area of not less than 400 square feet; having the HUD Certification Label affixed or having obtained a letter of label verification issued on behalf of HUD evidencing that the house was constructed on or after June 15, 1976, in compliance with the Federal Manufactured Home Construction and Safety Standards; being classified as real estate; being built and remaining on a permanent chassis; being designed to be used as a dwelling with a permanent foundation built in accordance with the Permanent Foundations Guide for Manufactured Housing; and have been directly transported from the manufacturer or the dealership to the site. For more information, see: U.S. Department of Housing and Urban Development. 2025. "Handbook 4000.1: FHA Single Family Housing Policy Handbook," 10 January.
10. Housing Assistance Council.
11. Ibid.
12. Linlin Liang, Rachel Siegel, and Adam Staveski. 2022. "Data Shows Lack of Manufactured Home Financing Shuts Out Many Prospective Buyers," Pew Charitable Trusts.
13. Karan Kaul and Daniel Pang. 2022. "The Role of Manufactured Housing in Increasing the Supply of Affordable Housing," Urban Institute.
14. Some studies define small-dollar mortgages as loans valued at less than $100,000, or even less than $70,000. The sources cited within this report use various thresholds, which are specified in the text.
15. Staveski.
16. Nuno Mota. 2019. "An Analysis of Small Balance Loan Origination in Rural and High-Needs Rural Areas," Fannie Mae.
17. Note that median sale prices for all homes increased dramatically between 2020 and 2022, largely driven by the COVID-19 pandemic rather than housing market factors; Tracy Maguze, Tara Roche, and Adam Staveski. 2023. "Small Mortgages Are Too Hard to Get," Pew Charitable Trusts.
18. U.S. Department of Housing and Urban Development. 2022. "Financing Lower-Priced Homes: Small Mortgage Loans."
19. Maguze, Roche, and Staveski.
20. Mike Fratantoni, Marina Walsh, Eddie Seiler, Jenny Masoud, Jon Penniman, and June Wang. 2023. "How do Mortgage Revenues, Costs and Profitability Vary by Loan Balance? An Analysis Using Benchmarking Data," Mortgage Bankers Association.
21. U.S. Department of Housing and Urban Development 2022.
22. Staveski.
23. Maguze, Roche, and Staveski.
24. Staveski; Federal Reserve Board. 2025. "Report on the Economic Well-Being of U.S. Households: Survey of Household Economics and Decisionmaking."
25. Staveski.
26. Housing Assistance Council.
27. U.S. Department of Housing and Urban Development 2022.
28. U.S. Congress. 2024. ROAD to Housing Act.
29. U.S. Congress. 2024. Small Dollar Loan Certainty Act.
30. U.S. Department of Housing and Urban Development 2022.