Online mortgages: Lenders, pros and cons

Homebuyers are increasingly choosing online mortgage lenders: Between 2013 and 2023, online lenders and other non-bank institutions more than doubled their share of the mortgage market, from 24% to 55%, surpassing traditional banks.

E-lenders often have lower rates, faster closing times and a broader range of mortgage products than traditional banks. Online giant Rocket Mortgage is the largest direct home loan provider in the U.S., and consistently ranks near the top of J.D. Power's surveys on customer satisfaction with the mortgage process. 

That doesn't mean there aren't hiccups, though. Online lenders Ally Bank and Discover both wound down their home loan businesses in 2025.

Is an online mortgage right for you? The answer isn't always cut and dry.

While most banks have robust digital offerings, an online lender has no physical locations and doesn't offer a full range of financial products, according to FICO, like checking and savings accounts.

An online mortgage lender specializes in mortgage and home equity products. Other online lenders might focus on student loans or debt consolidation.

There's really no "right" answer between a bank and an online mortgage lender. The choice depends on your needs.

Mortgage options

Because they face fewer regulatory restrictions and are zeroed in on home loans, online lenders typically offer a broader range of mortgage products. That includes non-qualified mortgages like bank statement, interest-only and profit-and-loss loans.

They're also more willing to take a risk on unconventional borrowers, like self-employed workers, foreign nationals, real estate investors and people who've experienced a bankruptcy or foreclosure.

Home equity products are relationship-heavy (and need deposits to fund them), so traditional banks are generally better for HELOCs and home equity loans.

Application and approval process

Online lenders work to ensure their application processes are intuitive and that users can file online or over the phone. They're also more likely to let visitors check rates with a soft credit inquiry, which won't hurt their credit score.

Because they don't need a full banking license, online lenders tend to have more flexible credit requirements. That can be a big plus if you have a non-traditional income stream or filed for bankruptcy.

If you're in a hurry, online lenders tend to close faster than brick-and-mortar banks. Twenty percent faster, according to the Federal Reserve.

Rocket Mortgage has an average closing time of 22 days, nearly half the industry standard. And hybrid lender Rate has a "Same Day Mortgage" program that allows qualified borrowers can get approval within one business day and close in as few as 10 days.

Rates and fees

Because they don't need overhead to maintain physical branches, online lenders have a reputation for lower rates. Depending on your credit score, though, that's not always the case.

It's more common to see online lenders like SoFi and Better waive origination fees for existing customers or as a promotion. But many brick-and-mortar credit unions have fee waivers or discounts for existing customers and others, as well.

Regardless, always comparison shop with several digital and traditional lenders to find the best deal.

Customer service

Your mortgage is a huge financial undertaking, likely the biggest in your life. Only a traditional bank or credit union can walk you through the process face-to-face.

And brick-and-mortar lenders have put a lot of resources into personalized service, whether that's a relationship discount or a coffee house in their lobby.

Just two online lenders, Rocket Mortgage and AmeriSave, scored above average on J.D. Power's 2024 mortgage origination survey. That doesn't mean you can't get good customer care with a digital lender. Many have online chat features and agents available by phone evenings and weekends, when most banks are closed.

But if you want a familiar face and all your affairs handled in one place, a bank or credit union comes out on top.

Not all online mortgage lenders are created equal. Here are things to look for when considering an online mortgage.

Reputation: Look at the lender's Better Business Bureau grade and see how it lands on J.D. Power's customer satisfaction surveys for mortgage origination and servicing. You may want to see how long it's been in business and what percentage of the mortgage market it has.

Loan types: You can get a conventional mortgage from any lender, but if you want an FHA loan or a non-qualifying mortgage, you'll have to narrow your search. The same is true of bridge loans, construction loans and home equity loans.

Rates and fees: While online lenders have a reputation for lower rates, it depends on the applicant. Look for one that posts its rates online and waives or discounts lender fees.

If you prefer going through the homebuying process quickly and in the comfort of your living room, an online lender will usually offer more convenience and options than a brick-and-mortar institution.

Sometimes (but not always) with lower rates, as well.

But if you're more comfortable with physical branches and decades (if not centuries) of experience, a traditional bank, like Chase or Bank of America, is the better option. Most offer excellent online service, too, so you'll enjoy the best of both worlds.

Online lenders will have more mortgage choices, but a traditional lender has a broader array of financial products, letting you keep your credit card, checking and savings accounts and investments all in one place.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of mortgage products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties and we pride ourselves on our journalistic standards and ethics.

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