Purchase FAQ

Get answers to common mortgage questions below. Buying a new home can be overwhelming,
so let us help you by answering common home buying and mortgage questions.

Talk to a Mortgage Banker

1-888-866-1212

Am I better off renting or buying a home?

The decision to rent or buy a home differs for everyone, as there are benefits to both. Buying a home could be a better deal for you depending on how long you plan to live in your home and the loan you choose. Try our Rent vs. Buy Calculator to help you decide which option is best for you.

What are the advantages of a home purchase?

A home purchase gives you personal benefits such as a sense of investing in your community and pride for achieving the dream of homeownership. There are some strong financial benefits as well, especially the tax savings you may enjoy. Interest payments on a mortgage are typically tax deductible (consult your tax advisor for more information). As you continue to make mortgage payments, you'll build home equity, as opposed to paying rent to someone else.

With today's low down-payment options, a home purchase may be easier than you think.

How much can I afford to borrow?

Everyone's financial situation differs; it is important to recognize what you can comfortably afford to borrow. In general, the loan amount you can afford depends on four factors:

  1. Your debt-to-income ratio, which is your total monthly payments as a percentage of your gross monthly income
  2. The amount of cash you have available for a down payment and closing costs
  3. Your credit history
  4. The value of the property you are purchasing

For a better understanding of how much you can afford to borrow, use our Affordability Calculator or call us at 1-888-866-1212.

How much do I need for a down payment?

Your down payment requirements will depend on your lender, the type of home loan you choose and the type of property you are buying. Your required down payment can range anywhere from 3%-20% of the home's purchase price. Discover offers a variety of different loan programs, including low down payment options. Each of our loan programs has different rules regarding the down payment required. Down payments can also vary by the amount you want to borrow, as well as factors like credit history. To find out what options we have for you, contact one of our experienced mortgage bankers at 1-888-866-1212 for a no-obligation quote or click "Request a Call" and we'll call you back.

What types of loans are available?

Discover offers a wide variety of loan products with various features. View our Loan Options table to compare our loan products. Please contact us at 1-888-866-1212 to further discuss our available loan options.

What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage?

An ARM is a loan that starts off with a low fixed interest rate for an initial period of time (anywhere from 1-10 years), and then the rate adjusts periodically to reflect changes in market interest rates. As a result, your monthly payment could either go up or down depending on interest rates when your loan adjusts. With a fixed-rate mortgage, the interest rate remains the same throughout the life of the loan, and your monthly principal and interest payments won't change. As a tradeoff for the security of knowing that your monthly payment won't increase, fixed-rate mortgages typically have a slightly higher initial interest rate than adjustable-rate mortgages. Homeowners who plan to remain in their homes for a longer time or prefer steady rates and monthly payments may prefer a fixed rate. One of our mortgage bankers can help you compare mortgages and choose one that works with your individual goals.

What is a conforming loan?

A conforming loan is a mortgage whose amount is under the maximum amount for loans that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are legally allowed to buy.

What is an FHA loan?

An FHA loan is a loan insured by the Federal Housing Administration (FHA). The FHA is a division of the U.S. Department of Housing and Urban Development (HUD) that insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

Do you have low out-of-pocket cost options?

With the wide variety of loan programs available today, there are many home finance options. With a minimal out-of-pocket cost loan, you'll see immediate reductions in your payments, and you won't have to sacrifice your savings or equity to get a great rate. Closing costs on these loans may be added to the principal balance or reflected in a higher interest rate. Contact one of our mortgage bankers for information on flexible financing options. Learn more about loan choices offered by Discover Home Loans by calling us at 1-888-866-1212.

What is the difference between prequalification and preapproval?

To get prequalified, you will need to provide Discover with some financial information such as your income and the amount of savings and investments you have. Discover will use this information to estimate how much money we may be able to lend you and therefore the price range of homes you can start looking at. To get prequalified Discover will request a formal credit check. The estimate of the loan amount provided to you does not guarantee you will ultimately be approved for that amount. Fill out our prequalification form today.

To get preapproved, however, you will need to provide Discover with financial documents including W-2 statements, paycheck stubs and bank account statements. We will use these documents to verify your financial status and request a formal credit check. A preapproval will help you when shopping for homes because sellers will have more confidence that you will be able to obtain a loan to purchase their house.

For both prequalification and preapproval, final approval will also depend on the property purchased.

How long will it take to get prequalified?

Prequalification can be a very quick process. It can take as little as 5 minutes. We will ask for your income, assets, employment and property information and obtain a credit report.

Should I get prequalified or preapproved before finding a home?

You don't have to apply for a loan before looking for a property. It is, however, a good idea to get prequalified or preapproved before you find a home; many real estate agents will take your offer more seriously if you've been preapproved. Also by going through this process, you'll have a better idea of the price range of homes that you might be able to afford.

Discover offers a free, no-obligation mortgage prequalification over the phone. Fill out our prequalification form today.

How do I get prequalified?

Discover makes it easy to through the prequalification process with the following two options:

  1. Option 1 - fill out a few basic questions on our online form and a Discover mortgage banker will call you to discuss your situation and begin the process.
  2. Option 2 - give us a call at 1-888-866-1212 and we will help you through the prequalification process.

How do I apply for a Discover home loan?

Simply fill out a few pieces of information on our online form and a Discover mortgage banker will call you shortly. If you prefer, you can always pick up the phone to begin the application process by calling us at 1-888-866-1212.

How long does the mortgage process take?

The time needed to complete the mortgage process varies by customer and lender because it includes gathering information from a customer, verifying that information and processing the actual loan. At Discover, we close loans fast. We have funded loans in as little as 10 days and target 30 days for refinance loans or before close of escrow on all purchase transactions. To learn more about the length of our mortgage process, please contact your mortgage banker at 1-888-866-1212.

What documents do I need to apply for a mortgage?

View our Purchase Application Checklist to access a list of documents required to apply for a mortgage.

What is a Good Faith Estimate (GFE)?

A Good Faith Estimate (GFE) is a written estimate of costs the borrower will have to pay at closing, provided by a lender shortly after your apply for your loan. To learn more about the GFE, read our Understanding Your Good Faith Estimate article.

What is LTV (loan-to-value)?

To qualify for a loan, lenders will look at your loan-to-value (LTV) ratio. LTV is a ratio, expressed as a percentage, of the requested amount of your home loan divided by the purchase price or appraised value of your home. For example, if the home you are purchasing or refinancing has been appraised at $200,000 and you are requesting a loan for $100,000, the LTV is 50% ($100,000 / $200,000).

What is the maximum LTV I can have to get a Discover home loan?

The amount we can lend depends on the type of loan you request. FHA programs offered by Discover can lend up to 97% of the appraised value of your home. Loan limits on FHA loans are predetermined by HUD (U.S. Department of Housing and Urban Development) and vary by county. Conventional loan programs offered by Discover can lend up to 95% of the appraised value of your home depending on the loan product. The maximum loan amount is at least $417,000 and is higher in some counties based on the county limits set by HUD.

Why is my credit score important?

Your credit score is a way of measuring how likely you are to pay (or not pay) your bills. It's just one of the key factors that Discover looks at when deciding if we will approve your loan application and for what amount and at what interest rate. The higher your credit score, the better your chances of approval at a favorable interest rate. You should discuss your individual credit situation with your Discover mortgage banker. In addition, you can obtain a free copy of your credit report once a year from each of the three major credit reporting agencies - Equifax, Experian, and TransUnion - by visiting www.annualcreditreport.com. You may also obtain a credit score from the agency for a small fee at any time, and your lender will provide your score when you apply for your loan.

Will my credit history prevent me from getting a mortgage?

A mortgage banker can explain how your credit score and credit history affect your ability to get credit and discuss available financing options. Contact your Discover mortgage banker by calling 1-888-866-1212.

What does it mean to lock my rate?

A rate lock is when a lender guarantees an interest rate for a set period of time, usually between loan application and closing. During this period, typically 15-90 days, you're protected against rate fluctuations. Lenders have to pay to "reserve" your rate, so the longer your lock-in period, the higher your cost. Our experienced mortgage bankers can answer your additional questions about rate locks.

How long can I lock my rate?

To learn more about your rate lock period options, contact your mortgage banker at 1-888-866-1212.

What is the difference between "locking" and "floating" a rate?

In order to protect themselves against a potential increase in interest rates, many borrowers ask their lender to lock in the rate they have been quoted for a specific period of time, usually 30-60 days. Other borrowers prefer to take the chance that rates will decrease while the loan is processed and let the rate on their loan "float." The rate can then be locked in at any time until just before your loan closes.

What is an appraisal and why do I need it?

An appraisal is a written estimate of a property's current market value, based on recent sales information for similar properties, the current condition of the property and the neighborhood. An appraisal is required because it provides written proof of your home's actual value which is used to determine the loan amount you can receive. Your lender will order your appraisal, but a third-party company will perform the appraisal. There will be a fee associated with your appraisal paid to the appraisal company. To learn more about appraisal fees, please contact your Discover mortgage banker at 1-888-866-1212.

Do I need a home inspection?

Although a homeowner's inspection may not be required by Discover for your home purchase, it is highly recommended before purchasing a house to help verify the value and condition of the property.

What happens at closing?

Closing is the point when your mortgage or deed of trust will be given to the new lender. At your closing, a closing agent will meet with you at a location convenient to you to review and sign the necessary paperwork to finalize your loan. In some states (called escrow states), the closing takes place over a period of time. A neutral third party holds money and/or documents until the escrow instructions are fulfilled. The party can be a title company or an attorney, depending on state regulations.

What are the various costs required at closing?

Closing costs can be divided into two main categories: items controlled by the lender and items controlled by third-parties out of the lender's control. The sum of these items is what you will be required to pay for at closing.

  1. Lender fees include any costs associated with processing your loan such prepaid interest for the extra days in addition to a full month before the first payment is due, discount points, origination charge and any rate lock fees.
  2. Third-party fees include fees paid for services performed by parties other than the lender, established by the state or local government or set by the individual vendors that provide the service. They also include pre-payments for taxes and insurance that are placed in an impound or "escrow" account. Some examples of third-party fees are appraisal fees, title service fees and government recording fees.

What homeowners insurance requirements will I need to meet at closing?

At the time of closing, lenders require you to show that you have adequate insurance in place. For example, if you're purchasing a home, your lender may require insurance that is valid for one year and covers at least 80% of the replacement value of your home. Although lender rules vary, you may want to consider purchasing full replacement costs insurance even if the lender doesn't require it, to make sure that you can repair or rebuild your home after a fire or other loss.

What is an escrow or impound account?

An escrow account is typically established at the time of your closing. An escrow account is held by the lender and contains funds collected as part of mortgage payments for annual expenses such as taxes and insurance.

What is the difference between APR and interest rate?

It is important to understand the difference between your interest rate and APR.
Your interest rate is the direct charge for borrowing money.
The APR, however, reflects the cost of your mortgage as a yearly rate and includes the interest rate, origination charge, discount points, and other costs such as lender fees, processing costs, documentation fees, prepaid mortgage interest and upfront and monthly mortgage insurance premium. When comparing loans across different lenders, it is best to use the quoted APRs for the same type and term of loan.

What are points and when should I pay them?

Paying points is a way to reduce your interest rate when you purchase or refinance your home. In essence, you pay up-front for a lower interest rate, reducing your monthly payments. One point is equivalent to 1% of your loan amount; one point on a $100,000 loan amount is equal to $1,000. To find out if paying points may benefit you, call one of our mortgage bankers at 1-888-866-1212.

How can I compare loan offers when shopping for a mortgage?

If you are comparing loans across lenders, be sure to look at all costs, not just the interest rate. The annual percentage rate (APR) tells you the estimated cost of your loan, which includes the interest rate and other upfront fees that you pay for the loan (such as discount points and origination fees). The APR is based on the assumption that you'll keep the loan for its entire term, so you should only use it to compare loans of the same type and length.Estimate your monthly mortgage payment now.

What is an index and how does it impact my rate?

An index is a published rate used by lenders to calculate interest adjustments on ARMs (Index + Margin = Interest Rate). Some indexes may adjust more frequently than others. Common indexes used are LIBOR (London Interbank Offered Rate), Treasury rates, and the prime rate.

What are closing costs?

Closing costs are fees incurred in a real estate or mortgage transaction and paid by borrower and/or seller during a mortgage closing. These typically include a loan origination fee, discount points, attorney's fees, title insurance, appraisal, survey and any items that must be prepaid, such as taxes and insurance escrow payments. Your lender will give you a copy of your GFE (Good Faith Estimate) that outlines all the closing costs associated with your loan soon after you apply.

What are third-party fees?

Third-party fees are costs associated with your mortgage that go to a third-party for services. Lenders typically have no control over most of these fees. Third-party fees include, but are not limited to, credit report fees, hazard insurance, appraisal fees and title company search fees.

What is an origination fee?

An origination fee is a fee a lender charges to process a mortgage, usually expressed as a percentage of the loan which pays for the work in evaluating and processing the loan.

What is prepaid interest?

Prepaid interest is a cost charged to a borrower at closing to cover interest on the loan for the extra days in addition to a full month before the first payment is due.

What is PMI and why do I need it?

PMI is private mortgage insurance, which you'll need to pay for if your down payment is less than 20% of the purchase price or if the loan has more than an 80% loan-to-value (LTV) ratio. Even if you're refinancing, you'll need to pay PMI as long as your LTV remains above 80%.

What is the difference between mortgage insurance and homeowners insurance?

Homeowners insurance is an insurance policy you have on your property, which protects you and the lender against accidents and loss of property or its contents. Mortgage insurance, on the other hand, protects the lender against losses due to default of a mortgage.

How much does mortgage insurance cost?

Mortgage insurance costs are based on loan-to-value (LTV) and credit profile and can vary across lenders. For more information on the cost of mortgage insurance, please contact your Discover mortgage banker at 1-888-866-1212.

What is title insurance and why do I need it?

Title insurance is insurance that protects the lender or buyer against loss from defects that might exist in the title to a property. In order to protect your loan "investment," a lender will typically require the seller to pay for "lender's coverage" title insurance. You can choose "owner's coverage" to protect your investment in the title of your property.

How much does your program cost?

As a valued customer, this program is offered to you at no cost. You may be responsible for any real estate fees or commissions, if applicable.

Is this program available nationwide?

Yes, with the exception of Iowa.

Ask your Real Estate Coordinator for details on your state.

If I contact your program, am I obligated to use the program?

No, the program coordinator will be happy to explain the program without any obligation on your part.

How many times can I use the program?

As often as you like!

I am selling my home and looking to purchase a new home, can I get cash reward on both transactions?

Yes - you may be eligible for rewards on both transactions. Please check with your Real Estate Coordinator.

Can I buy or sell more than one property at the same time through the program?

Yes and you may receive a cash reward (if applicable) on each transaction. Please check with your Real Estate Coordinator.

Other than Cash Rewards what are other benefits to me?

This program offers many other benefits to you in addition to the Cash Rewards

  • Guidance throughout your home purchase or sale
  • Introduction to an experienced and trained real estate agent
  • Access to online tools for home search, school and community research
  • Tips and Checklists related to buying/selling and moving
  • Potential for discounts on moving services such as truck rental

Is it possible to qualify for the program using a Real Estate Agent I know?

To qualify for the Real estate Rewards program, your purchase and/or sale must be completed by a real estate agent within the program. If you would like to work with a specific agent, please discuss this with your Coordinator.

How do I know I'm getting a quality Real Estate Agent with this program?

This program is offered through Cartus, a global leader in relocation services, and employs a rigorous qualification and ongoing requirements process for agents to be in the network. Cartus is part of the Realogy Franchise Group, the leading franchisor of real estate brokerages in the world, including world-renowned brands such as: Better Homes and Gardens® Real Estate, CENTURY 21®,Coldwell Banker®, ERA® and Sotheby’s International Realty®.

How soon can I expect a Real Estate Agent to contact me?

Please call 1-800-752-0628 to get started. Your Real Estate Coordinator will be able to enroll you and put you in touch with a Real Estate Agent within one business day.

What if I'm not satisfied with my real estate agent?

Your satisfaction is very important to us—if you have an issue or concern with your agent, let your coordinator know right away. They may find you a new agent who can better meet your needs. If your issue is still un-resolved, or if you need to escalate it, please call us at 1-800-752-0628.

Once I start working with the referred Real Estate Agent, will the Real Estate Coordinator continue to assist me?

Yes, your Real Estate Coordinator and Mortgage Banker will keep in contact with you throughout the process. If you have any specific questions or issues, please free to contact them.

Do I have to use Discover Home Loans for my mortgage in order to be eligible for the rewards and other benefits?

No. Obtaining your mortgage from Discover Home Loans is not a contingency for receiving the cash rewards and other program benefits.

Discover Home Loans offers many benefits to help you with your mortgage needs:

  • Competitive rates with no hidden fees
  • Simple, straightforward process
  • Loan options to suit your needs
  • Dedicated Mortgage Banker from first call to closing

How long does it take to get my cash reward?

Typically, your reward will be mailed within 4 weeks of closing through the program.

Ask your Real Estate Coordinator for details on your state.

What are your regular business hours?

  • Monday to Friday : 7:30 a.m. to 8:00 p.m. (Central Time)
  • Saturday : 8:30 a.m. to 5:00 p.m. (Central Time)
  • Closed on Sundays and major holidays.