Discover Home Equity Review 2024

Discover Home Loans offers mortgage products in all states except Iowa and Maryland. They also don’t offer home loans in any U.S. territories: American Samoa, Guam, the Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands.

Discover’s rates on 30-year, fixed loans begin at 6.49%—about 20 basis points higher than the national average at the time of writing. In exchange for the higher rate, Discover will pay all of your closing costs.

Unlike many home equity lenders, Discover Home Loans doesn’t require borrowers to have an existing Discover banking relationship to get the best rates.

Loan Types

Discover Home Loans offers the following types of mortgages:

• Home equity loans
• Mortgage refinance loans

If you want another loan type, such as a USDA loan or jumbo loan—or if you want to buy a home, for that matter—you’ll have to go through another lender.

Loan Minimum

Discover Home Loans’ minimum loan amount is $35,000.

Loan Maximum

Loan maximums with the company depend on your qualifications. But you can borrow up to $300,000 on a home loan through Discover.

Loan Servicing

Discover Home Loans is the mortgage servicer of all the loans it originates. So, if you get your loan from Discover, you’ll also make your payments to them. They don’t service mortgages from other originators.

If you want to cash in your home equity but haven’t accumulated up to 20% of equity (required by most lenders), then refinancing or getting a home equity loan with Discover might be right for you. With Discover, you may be able to get a home equity loan with only 10% home equity. It’s also best for those who don’t have the money to cover closing costs but can afford a higher interest rate.

Here are the basic criteria Discover requires borrowers to meet in order to qualify for a home equity loan.

Minimum Credit Score

The minimum credit score requirement for Discover Home Loans is 620, but there are additional criteria you must also meet to be approved for a loan. To get Discover’s best available rate, you’ll need excellent credit, but your CLTV and loan amount will also factor into your rate.

“The lowest APRs are available to borrowers requesting at least $80,000 for second liens or $200,001 for first liens,” according to Nicole Straub, senior vice president of Discover Home Loans.

Applicants with credit scores closer to 620 might pay an APR up to 9.99% for first liens and 12.99% for second liens based on loan amount and creditworthiness, including income and property information, Straub said in an email.

Maximum Combined Loan-to-Value (CLTV)

On a home equity loan, combined loan-to-value (CLTV) is the total of your first and second mortgage balances divided by your home’s value. Discover allows a CLTV as high as 89.99%, whereas some lenders max out at 80% CLTV. If your home is worth $400,000, your CLTV could be as much as $359,999. If you owe $300,000 on your first mortgage, you might be eligible for a home equity loan of up to $59,999.

Maximum Debt-to-Income (DTI) Ratio

The maximum debt-to-income ratio, or DTI, for a loan with Discover is 43%. Your DTI will not affect your rate, only your eligibility.

Most lenders charge fees, but some charge higher fees than others. Lenders with no origination fee often make up for it by charging borrowers a higher interest rate, and that’s exactly what Discover does. Here’s what Discover Home Loans charges.

Origination Fees

Discover doesn’t charge  fees for mortgage processing and underwriting. While the appraisal and other services from different vendors typically add to your closing costs, as is the case with any mortgage, Discover takes care of these fees for you.

With other lenders, you would evaluate the fees for your specific loan on your loan estimate before you commit to borrowing. There would also be certain mortgage services you might shop for to look for lower fees, like title insurance for example. You can skip that legwork with Discover Home Loans—but remember you’re paying a higher rate.

Rate Lock Fees

Discover Home Loans will lock your mortgage rate for 25 days from the date you apply. You’ll get the best rate you qualify for on that day, rather than waiting and watching for the perfect time to lock.

The company doesn’t offer rate lock extensions or float-down options. If you don’t complete your application within 25 days, Discover will close it. If you resume the process later, you’ll get the best available rate at that time.

“Luckily, our rates are not tied to a rate index like conventional loan rates, which may change multiple times a day. Our rates tend to stay more stable over time,” a company spokesperson said.

Prepayment Penalties

Discover Home Loans does charge prepayment penalties if you pay off your loan within 36 months of closing. In that event, they require you to repay a portion of the closing costs—up to $500. Borrowers living in Connecticut, Minnesota, North Carolina, New York, Oklahoma, or Texas are exempt from Discover’s prepayment penalties.

The company doesn’t charge borrowers any monthly payment fees on its loans—unless one of your loan payments is late or there are insufficient funds to cover your payment.

Before you apply, you can review Discover’s loan application checklist and common mortgage documents brochure to help you understand the process and get through it faster.

You can submit a home equity loan or refinance application online, including uploading documents like bank statements and pay stubs. Submitting this information online may speed up Discover’s processing of your loan. On their website, you can also check your loan’s status and review submitted documents.

Approval, Underwriting and Closing Timelines

Whichever type of mortgage you apply for, you can expect to be approved or declined within 6–8 weeks of submitting your application—perhaps as little as four weeks in a best-case scenario. Obviously, the timeline partly depends on how quickly you submit any documents Discover needs to process your application. It also depends on the complexity of your situation and factors outside your control, like how busy the lender is working with other applicants.

When it comes to closing a loan online, “in areas where virtual closings are legal, Discover may be able to arrange such a closing for you,” said a spokesperson for Discover.

You’ll likely need to work on raising your credit score, paying down your debt, or increasing your income to qualify with Discover if your application is denied. If you can make improvements in these areas of your finances, it’s possible you’ll not only get approved but get a better rate.

However, if you need a loan before completing these steps, you might be able to get approval from another lender with more relaxed requirements.

A co-signer or co-borrower may be another option, but asking someone to take on a mortgage with you is a commitment not everyone is willing to make, especially if this person doesn’t live in the home with you. If you’d like to get an idea of what you can afford without help, use our mortgage calculator.

Before deciding on your next move, you could apply with several mortgage lenders to find out where you stand. Don’t be concerned about damaging your credit score: Submitting multiple applications within 45 days will impact your score the same as submitting a single application, according to the Consumer Financial Protection Bureau (CFPB).

Discover Home Loans’ Better Business Bureau (BBB) rating is 1.13 out of 5 stars based on 307 customer reviews as of April 2023. The BBB had closed 1,154 complaints about the company in the last 12 months, and 2,293 complaints in the last three years at the time of writing.

The BBB gives Discover Home Loans an A+ rating, but this rating isn’t based on customer reviews. It’s based on how the company responds to complaints, its time in business, size and other factors.

The Consumer Financial Protection Bureau’s (CFPB) complaint database shows nine home equity-related complaints about Discover Home Loans from July 2022 through April 2023.

The majority of these complaints were about problems with the application process. The company provided a timely response to nearly all complaints. The CFPB doesn’t verify the accuracy of consumers’ complaints.

These numbers are insignificant compared to how many customers use Discover Home Loans’ services, and your experience with the lender may vary.

Like getting your first mortgage to buy a home, you should shop around before selecting a lender for your home equity loan. Be sure to shop as much as you can to find the best rates. Compare loan estimates from different lenders, and leverage the best offer to potentially negotiate a lower rate with another lender.

Affordability

Discover pays all the closing costs and covers the appraisal fee during the process. However, as a result, you’ll pay a higher interest rate on the loan. Discover also charges a prepayment penalty if you pay off the loan early.

Accessibility

Discover allows you to borrow against almost 90% of your home equity. However, you’ll also need to prove you can afford the loan by having a DTI ratio lower than 43% and good credit history.

Borrower Experience

You can complete all or nearly all of the application process online. You also can begin the application over the phone, if you prefer. Discover doesn’t charge an application fee.

We graded Discover Home Loans based on features that have a meaningful impact on the cost of a home equity loan and a borrower’s experience, including interest rates, loan options, accessibility, closing time and customer service.

We award bonus points if a lender doesn’t require closing costs on its home equity products, offers a specialty rate discount, a fixed-rate HELOC option, customizable terms for its home equity products and/or maintains a fully online application process.

Our scoring method is broken down as follows:

• Interest rate. 25%
• Time to close. 20%
• Accessibility. 20%
• Customer service experience. 20%
• Loan options. 15%
• Bonus points. Up to 25 points

We chose to focus on these core elements to bring forward lenders that offer the most competitive rates while also providing a satisfactory customer experience accessible to borrowers of all financial backgrounds. We believe this scoring system best reflects consumers’ top priorities when comparison shopping for mortgage lenders.

To learn more about our rating and review methodology and editorial process, check out our guide on How Forbes Advisor Reviews Mortgage Lenders.