How to Refinance a Jumbo Loan

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Jumbo loans are mortgages that exceed the credit limits set by Fannie Mae and Freddie Mac. In most of the country, that translates to a loan of more than $ 548,250 for a single property. However, in some higher priced counties, compliant loans can go up to $ 822,375.

Because jumbo loans do not follow Fannie and Freddie’s guidelines, they cannot be purchased from these companies. That and their higher balances make them a higher risk for lenders. This usually means that borrowers must meet stricter standards when applying for refinancing.

You can also usually expect to need strong creditworthiness and several months of cash reserves to refinance your home loan, although these standards vary by lender.

What else you should know about refinancing a jumbo loan:

When to Refinance a Jumbo Loan

Refinancing a jumbo loan can be a wise decision if:

  • Mortgage rates are lower than your current interest rates. This is probably the most popular reason to refinance: to save money on interest.
  • You have a change in your financial situation. For example, if you’re making more money, you can consider refinancing into a shorter-term loan so that you can repay the loan sooner (and with less interest).
  • You want a different type of loan. For example, if you want to refinance into a fixed rate loan with an ARM, you can do so through refinancing.
  • You want to take cash home with you. You could get one Cash-out refinancing which will allow you to refinance your loan at a higher amount than the current one – then you will receive a check for the difference.
Top: The most important thing in the decision if you should refinance, however, is your “break-even point”.

Since refinancing comes with closing costs, make sure you stay home long enough to cover these charges. Basically, you should be saving more money than you paid to refinance the loan.

Requirements for refinancing a jumbo loan

Jumbo loan requirements vary from one lender to the next, but in general you can expect to meet higher standards than a compliant loan or an FHA loan.

Here’s a look at some general requirements you may need to meet in order to qualify:

Minimum. credit-worthiness Sometimes just 680, but usually 700 or higher
Max. Debt-Income Ratio 38% to 43%
Loan-to-value ratio Up to 90%
Cash reserves 6 to 18 months payments
properties
  • Main residence
  • Second homes
  • Investment property

Find out: How to refinance an investment property

You will also need to provide some financial documents in order to qualify for the Mortgage refinancingincluding:

  • Your past W-2s, 1099s, and tax returns
  • Confirmation of employment
  • Current pay slips
  • Bank statements for all bank accounts and pension accounts

Closure costs are also required. You can usually expect to pay between 2% and 5% of the total loan balance in closing costs, although these vary depending on the lender.

In some cases, you may qualify for a no acquisition cost refinancingwhich essentially means your closing costs will be included in the loan balance.

How to Refinance a Jumbo Loan

The process for refinancing a jumbo loan is similar to your original one mortgage. You should:

  1. Compare multiple lenders to make sure you get the best Jumbo refinancing rates and terms.
  2. Gather your financial records (mentioned above) and submit it to your chosen lender.
  3. Wait for your reviewwhich is usually ordered by the lender.
  4. Attend your graduation appointment and sign the paperwork.
  5. Pay your Refinance closing costs, usually by wire transfer or cashier’s check.
Once you do, your old loan will be paid off and you will start paying your new lender – at the new amount – in the future.

Make sure to update all automatic payments accordingly if necessary.

Learn more: How to Refinance Your Mortgage in 4 Easy Steps

How Jumbo Loan Refinancing Affects Your Mortgage

Here are a few ways that refinancing your jumbo loan can affect your mortgage:

  • It can lower your interest rate. You could lower your interest rate, which could also give you a lower monthly payment.
  • It can change the type of interest rate you have. If you currently have a floating rate loan, you can opt to refinance into a fixed rate loan to protect yourself from interest rate hikes across the board.
  • It could shorten or lengthen your repayment term. Opting for a shorter term loan would mean a higher payment, but a faster payout. A longer term loan would likely lower your monthly payment, but add more interest in the long run.
  • It can allow you to take cash with you from home. With a cash-out refinancing, you take out a new loan, the balance of which is higher than the current one. You will then receive the difference between the two balances in cash.

Top: It is also possible to combine many of these effects. However, your options depend on your personal situation, how much equity you have in the house, and which lender you choose.

Continue reading: How Often Can You Refinance Your Mortgage?

Don’t skip shopping

Jumbo loans can be risky products for lenders, so they vary widely from company to company. Make sure that you compare multiple lenders to ensure that you are getting the best loan for your needs and budget.

Credible Operations, Inc. makes it easy to see which refinance offers you are eligible for and compare them – all at once, without visiting multiple lenders.

Find out if a refinance is right for you
  • Actual rates from multiple lenders – Get the actual pre-qualified installments in 3 minutes without affecting your creditworthiness.
  • Smart technology – We streamline the questions you need to answer and automate the document upload process.
  • End-to-end experience – Complete the entire origination process from price comparison to closing, all on Credible.

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Checking the prices does not affect your balance

About the author

Aly J. Yale

Aly J. Yale is a mortgage and real estate agent. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and others.

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