Discover Mortgage Review | The Ascent - The Motley Fool

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You may only know Discover for its consumer-friendly credit cards, but it also offers home loans to borrowers looking for a refinance mortgage or a home equity loan. That short list of offerings makes Discover's program more limited than other lenders', but the price is right. Take a look at our full Discover mortgage review to find out if this is the best mortgage lender for you.

Discover Home Loans
Bottom Line
Check out Discover Home Loans if you want to borrow against your primary residence, you want to minimize your out-of-pocket costs, and you need less than $300,000.

Min. Credit Score
Min. Down Payment
Key Features
Loan Types
Fixed Rate Terms
Adjustable Rate Terms
This mortgage lender is a good fit for borrowers who want to borrow against the equity in their home and pay minimal out-of-pocket costs at closing.
You can get a Discover home loan with zero cash due at closing. There is no origination fee, which could represent significant savings. When lenders do charge this fee, it typically ranges from 0.5% to 1.5% of the loan amount.
Discover also picks up the appraisal fee, which saves you another few hundred dollars in out-of-pocket costs.
Note that if you pay off your loan within three years, you will be required to pay Discover back for some of the closing costs, up to $500 (except in Connecticut, Minnesota, New York, North Carolina, Oklahoma, and Texas).
Not all mortgage lenders offer home equity loans. A home equity loan is a second mortgage. You can borrow against your home's value while leaving your original mortgage intact.
Discover has an A+ rating with the Better Business Bureau.
Discover offers technology that makes it easy to navigate the mortgage application process online.
Discover does not currently offer FHA loans, VA loans, or USDA loans.
Discover only offers loans between $35,000 and $300,000. If you need to borrow more, you will have to look elsewhere.
If you're shopping for a home, you can't buy it with a Discover mortgage. The company only offers refinance loans and home equity loans.
A home equity loan is different from a HELOC (home equity line of credit). With a HELOC, you can access the money you need, up to your limit, at any time while the HELOC is open. Repayment starts while the HELOC is open, and your payments get bigger if you take more money out. With a home equity loan, you borrow a set amount all at one time.
Discover takes a hard-sell stance on debt, encouraging consumers to borrow for any major expense. But this isn't always a wise decision.
Some reasons to borrow are perfectly appropriate — like home improvements. If you're increasing the value of your home, borrowing against it makes sense. Also, using the money to improve your home is the only way you can legally take the mortgage interest tax deduction with a home equity loan.
Borrowing against your equity puts your home at risk, so it's best to use a home equity loan for reasons such as:
There's one more use for the money that could work out well for certain consumers: Some borrowers successfully use a home equity loan to purchase an investment property. This works best when you don't incur mortgage interest on the primary property as a result of the home equity loan, and the rent you receive covers the entire monthly cost of the investment property.
If you need to borrow more than $300,000, try Axos Bank Mortgage. Axos offers a super jumbo home loan program that goes up to $30 million, which is a high enough limit to accommodate most borrowers. Axos caters to borrowers who need non-traditional mortgages, so it's a great lender to contact if you think you'll have a hard time qualifying for a traditional mortgage.
If you're looking for an FHA loan, try Freedom Mortgage. Freedom is one of the top FHA mortgage lenders in the country. You might be able to qualify with Freedom if you have a credit score below 620. One potential downside, though, is that Freedom doesn't publish its mortgage rates. You have to talk to a loan officer to get even basic information.
You can only borrow against your primary residence, which can't be a manufactured home, and the loan must be between $35,000 and $300,000.
Discover requires a 620 credit score. That score won't get you the best rate, though. Discover offers a range of mortgage interest rates, and only the strongest applicants will qualify for the lowest rate. Lenders typically offer at least three to five different interest rates to applicants depending on their credit score. You can save money for the life of your loan if you can get your credit score into the next-higher tier before you apply.
To get the lowest interest rate at Discover, you'll also need to borrow at least $200,001 on a first-lien loan or $80,000 on a second-lien loan.
You must have a score of 700 to qualify for a loan above $150,000.
Your debt-to-income ratio should be under 43% to qualify. That means that all of your required minimum monthly payments on debts, including your total housing payment, must add up to no more than 43% of your gross (before tax) income. Your total housing payment includes your mortgage principal and interest payment, property taxes, homeowners insurance, and any homeowners association dues that you are required to pay.
For example, if you earn a salary of $60,000 per year, your monthly gross income is $5,000. To qualify for a Discover Home Loan, your total debt payments cannot exceed $2,150 per month.
Last, you need sufficient equity in your home. Discover will loan a maximum of 80% to 90% of your home's market value. The limit depends on your loan amount and your credit score.
Discover's mortgage refinance rates are competitive. Most no-closing-cost loans are associated with higher interest rates, but Discover remains right in line with national averages for refinance loans.
Home equity borrowers who already have a first mortgage will pay a higher rate because the home equity loan will be in the second lien position behind the primary mortgage. That equates to more risk for the lender, so it charges more. Even so, the interest rate on a home equity loan is still very low compared to the alternatives (personal loans, credit cards, and so on).
As a major national lender, Discover offers very competitive mortgage interest rates. Discover's mortgage rates trend lower than the national average.
There are no adjustable-rate mortgages here with low teaser rates. Discover only offers fixed-rate loans.
Check out Discover Home Loans if you want to borrow against your primary residence, you want to minimize your out-of-pocket costs, and you need less than $300,000.
Discover's mortgage interest rates are about the same or a little lower than the national average.
Yes, if you are borrowing against your primary residence. You can't get a Discover mortgage to purchase a home.
Discover Home Loans is a great choice for refinancing because you can get a loan with zero cash at closing. Closing costs are often thousands of dollars, so this is a significant advantage.
You'll need a 620 credit score (700 if you want to borrow more than $150,000) and a debt-to-income ratio under 43%. You also need sufficient equity in your home. The loan-to-value ratio is 80% to 90%, depending on your loan amount and credit score. You may not borrow from Discover against a manufactured home. The minimum loan amount for a second-lien loan (a home equity loan when you already have a primary mortgage) is $80,000. The minimum loan amount for a first-lien loan (a refinance mortgage that replaces your old loan) is $200,001.
Discover Home Loans only offers two kinds of mortgages: home equity loans and refinance loans.
Kimberly is a personal finance writer/editor, consumer credit expert, and financial literacy advocate. She has lots of degrees and personal experience that make her really good at helping people separate the good from the bad in financial products and habits. She likes to roller skate. Tweet her @rotterwrites.
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