Refinancing a jumbo mortgage is similar to refinancing a conforming mortgage, but since jumbo loans may carry higher interest rates, paying close attention to mortgage quotes can help you save on lender fees, mortgage rates, and discount points. Refinancing while rates remain relatively low could save money in the long run. The following tips can help with finding and negotiating your best deal when refinancing a jumbo home loan.
- Ask who will own your mortgage: Mortgage lenders sell mortgages to investors to raise cash for making more mortgage loans. Jumbo mortgages are not subject to "qualified mortgage" guidelines as they aren't eligible for sale to Fannie Mae and Freddie Mac. Mortgage lenders may have more flexibility in negotiating jumbo loan terms according to individual investor requirements. Investors that purchase only jumbo loans may not charge higher interest rates than for comparable conforming loans.
- Check your credit scores: Jumbo mortgages are considered a higher credit risk than conforming mortgages, so it's important to have strong credit scores. The Wall Street Journal reports that while some lenders may consider FICO scores as low as 680 for jumbo loans, borrowers with scores of 760 or better qualify for the best loan terms. If your scores are a few points shy of 760, it may be worthwhile to pay off debt to raise your credit scores before shopping refinance loans.
- Know how much home equity you have: Home equity is roughly calculated by subtracting any outstanding mortgages against your home (or in the case of refinancing, the amount you plan to borrow) from your home's current value. Divide the result by your home's current value to determine your home equity percentage. For example, if your home is worth $200,000 and you're planning to refinance for $150,000, your estimated home equity would be $50,000. Divide $50,000 by $200,000; the result is 25 percent. Mortgage lenders may approve jumbo refinancing based on as little as 20 percent current home equity, but the more home equity you have, the more likely you'll qualify for better refinancing terms.
- Request and compare multiple quotes for jumbo mortgages: This establishes a basis for comparing loan costs and rates for the loan amount you need. The Federal Trade Commission encourages consumers to negotiate terms and rates with lenders based on the mortgage quotes you've received. Review each mortgage quote line by line and make notes for each one; after comparing quotes, you can choose your top contenders based on your needs.
- Create a negotiating strategy: Use your notes for each mortgage quote to develop a negotiating strategy. One lender may offer a low mortgage rate, but high discount points. Another lender may offer a low rate with no discount points, but charges higher lender fees than other jumbo mortgage quotes. Each mortgage quote will have benefits and drawbacks; choose the quote that looks best and negotiate based on your needs and terms offered in your other quotes.
Select a mortgage lender that values your business and takes time to answer questions and address your concerns. Finding a loan officer that prioritizes your business and understands your financial goals can help expedite your loan approval process.