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How to Refinance a Jumbo Loan
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If you have a loan balance that exceeds $647,200 — or $970,800 in high-cost areas — you probably have a jumbo loan, based on limits set in 2022 by the Federal Housing Finance Agency (FHFA). You can save hundreds of dollars every month if you refinance your jumbo loan when rates are dropping, as long as you’re prepared to jump through the same qualifying hoops as when you bought your home.
When you should refinance a jumbo loan
In general, you should refinance a jumbo loan if:
Your current loan balance is higher than the conforming limits. In 2022, the conforming loan limit rose to $647,200 for most parts of the country and $970,800 for high-cost areas. If your existing loan balance exceeds these limits, a jumbo refinance loan may be your only option.
Your home’s value has gone up. Some lenders offer better refinance rates if you have more home equity.
You can lower your interest rate with a new jumbo loan. If current jumbo refinance rates are lower than what you’re paying now, a jumbo refinance may lower your monthly payment by hundreds of dollars.
You need a jumbo loan to tap the equity in your home. If your home’s value has risen, you may want to borrow some of the equity to make home improvements or buy a second home. A jumbo cash-out refinance allows you to borrow more than you currently owe and pocket the difference to use as needed.
10 steps to refinance your jumbo loan
Unlike conforming conventional refinance loans, which are often approved using automated underwriting systems that follow guidelines set by Fannie Mae and Freddie Mac, jumbo loans are “manually underwritten,” meaning a human loan underwriter reviews your paperwork to make sure it meets the jumbo investor’s standards.
Jumbo loans are also called “non-conforming” loans, because they don’t “conform” to Fannie Mae and Freddie Mac rules. Most borrowers follow the following jumbo refinance steps:
- Determine if you still need a jumbo loan. The criteria for jumbo loans changes each year FHFA sets the conforming loan limits. If your existing loan balance exceeds these limits, a jumbo refinance loan may be your only option.
- Check your credit scores. Many jumbo lenders set the minimum bar at 700 for a jumbo loan. That’s 80 points higher than the conventional minimum, so make sure you check your credit score before you apply for a jumbo refinance.
- Make sure your debt-to-income (DTI) ratios are in line. Jumbo lenders measure your DTI ratio by dividing your total debt by your gross income, and 45% is the standard maximum. That’s significantly lower than the 50% ratio conforming lenders allow.
- Shop for the best jumbo refinance rates. Some lenders specialize in jumbo loans. Banks may even offer lower rates if you carry large deposit balances with them. Compare loan estimates with at least three to five lenders to make sure you’re getting the best deal.
- Ask the lender when you can lock in your rate. Jumbo lenders may require a loan approval before locking in your rate. Jumbo rates change daily, so make sure you know your lender’s lock policy to avoid any surprises in the terms of your rate later in the process.
- Provide your paperwork promptly. Because jumbo lenders don’t allow automated approvals, you’ll have to provide more financial paperwork. Jumbo loans typically take longer to close than standard loans, because a human underwriter is involved in the decision making and is responsible for ensuring the loan meets jumbo investor standards.
- Keep your cash liquid. It’s not uncommon for a jumbo lender to require proof of six to 24 months’ worth of mortgage payment reserves in a liquid account, meaning it can be easily converted to cash.
- Plan for a pricey appraisal. If you’ve got a custom home or a lot of square footage, appraisers may charge more to find comparable homes, and for the extra legwork it will take to measure out and list all the amenities in your home.
- Notify your escrow officer and loan officer of any trusts in advance. Lenders want to make sure they can collect on a jumbo loan if you default, and they may require extra steps to approve any trust your property is held in. Escrow officers may also need a copy of the trust to properly prepare your closing documents.
- Review your closing disclosure and close. Like any refinance, you’ll receive a closing disclosure three business days before your closing. Review the paperwork and make sure the numbers are what you expected. If everything looks correct, your loan documents will be returned to the lender, your old jumbo loan balance will be paid off with the funds from your new jumbo loan.
Jumbo refinance requirements
Jumbo refinance guidelines vary by lender but typically require:
- At least 20% equity in your home
- A minimum 700 credit score
- Total debt that doesn’t exceed 45% of your income
- A maximum loan amount of $1 million to $2 million
- Cash reserves equal to between six and 24 monthly mortgage payments
- No major credit problems in your recent past, such as bankruptcies or foreclosures
- Full documentation of all sources of income including tax returns, paystubs, CPA letters and IRS validation of all filed tax forms
How to get the best jumbo refinance rates
Jumbo lenders typically set interest rates based on their own standards. Shopping for the best jumbo refinance rates could save you thousands or even hundreds of thousands of dollars over the life of the loan.
You’ll typically snag the best jumbo mortgage refinance rates if you:
- Have a high credit score. Although 700 is the minimum, jumbo lenders may reward higher-credit-score borrowers with lower rates and closing costs.
- Don’t borrow the maximum. Jumbo lenders may offer a lower rate if you’ve built up substantial equity and just want to refinance to save on your monthly payment (and not tap equity).
- Have large deposit balances at local or investment banks. Institutional banks may offer special jumbo refinance rates if you have a substantial cash or investment portfolio with them.
- Avoid niche jumbo loan programs. Some jumbo lenders offer special programs to make jumbo refinance qualification easier, such as using bank statements instead of tax returns to prove income. These flexibilities usually require you to pay a premium in the form of a higher interest rate.
Choose the right type of jumbo mortgage refinance
Jumbo rate-and-term refinance
If current jumbo rates are lower than what you’re paying, you can replace your loan with a rate-and-term refinance. If you can afford a higher payment, you’ll pay your loan off faster and save thousands in interest charges by switching to a shorter-term, such as a 15-year fixed-rate jumbo loan.
Jumbo cash-out refinance
You can convert home equity to cash by borrowing more than you owe with a jumbo cash-out refinance. The extra funds can be used to pay off other debt, purchase an investment property or make home improvements.
Adjustable-rate jumbo refinance mortgage
Jumbo borrowers looking for short-term savings may benefit from a jumbo adjustable-rate mortgage (ARM) refinance. ARMs typically feature a lower rate for a set time such as three, five or seven years, and then adjust based on the terms of the ARM program you choose. They may be a good choice if you’re planning to sell your home before the teaser rate period expires and want to build up some extra savings for a new home.
Interest-only jumbo mortgage refinance
Many lenders offer an interest-only option for jumbo refinance loans. You pay only the interest charges each month for a set time, which makes your monthly payment significantly lower. They may be a good choice for temporary savings on your mortgage payment, as long as you have the resources to make the full payment once the interest-only period ends.
Non-QM jumbo refinance loans
The “QM” in non-QM stands for “qualified mortgage” and relates to requirements set by the Consumer Financial Protection Bureau (CFPB) to verify borrowers can repay a loan. A non-QM loan allows lenders to create “outside-the-box” guidelines to help borrowers who don’t meet standard QM rules qualify for a mortgage.
Although you can expect a higher interest rate, a non-QM jumbo refinance may be worth a look if:
- You are self-employed. Borrowers with complex self-employment financials may opt for bank statement programs that analyze deposits to qualify, rather than tax returns.
- You have a high net worth. Jumbo refinance lenders usually offer some type of asset depletion program, which allows them to divide your total cash assets by a lender-chosen time period and count the result as qualifying income.
FAQs about jumbo refinance loans
Should I refinance from jumbo to conforming?
Yes, if your loan balance is below the maximum conforming loan limit for your area. Conforming loan limits change every year, and if home values have risen since you bought your home, your loan balance may be within the conforming loan balance. Conforming loans are easier to qualify for than jumbo loans and often feature lower rates.
Can I refinance an underwater jumbo mortgage?
In most cases, no. Available underwater loan programs are typically for non-jumbo loans. You may be able to work out a mortgage modification with your current lender or servicer if you contact them directly.
How can I avoid a jumbo mortgage refinance?
Consider a piggyback loan to avoid a jumbo mortgage refinance by taking out two loans instead of one. You borrow up to the maximum conforming loan with a first mortgage and “piggyback” the difference with a home equity loan or home equity line of credit (HELOC), up to the amount you owe.
For example, if your loan balance is $750,000, you could take out a first mortgage for up to the maximum conforming limit of $647,200, and add a HELOC for $102,800 to cover the difference. The combination of the loans allows you to avoid a jumbo loan refinance.