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Can You Refinance a Jumbo Mortgage?

Reviewed by: David Naimey

Approved by: Chad Turner

Of course, you can. A jumbo loan refinance is a great option if you have improved your credit report or need money for home improvement projects. Jumbo loan refinances are similar to conventional refinance options. Like a conventional loan, homeowners who buy a home with a jumbo loan can refinance it to tap into the equity they have built or benefit from better lending terms. 

Jumbo Mortgage Refinance

Because jumbo loans have high requirements for documentation and credit, due to the lender risk, you must be prepared for a lengthy process and have all necessary personal information and documentation ready. Due to the larger loan amounts and stricter underwriting standards, refinancing a jumbo loan application requires careful consideration and planning. 

Here is a guide on how to plan and make a jumbo mortgage refinance work for you and unlock the flexibility of a line of credit for your needs. If you wondered can you refinance a jumbo mortgage, you’ll find al the answers here. 

Jumbo Refinance Requirements

Credit score

First and foremost, minimum credit score requirements are usually higher. Borrowers typically need a credit score of 700 or higher. Remember that the best loan rates are often reserved for those with scores above 740.

Shorter loan terms may require a very good credit score of more than 720. Longer loan periods can be covered with credit scores of 700 and above. 

Debt-to-income ratio

The debt-to-income (DTI) ratio is very important for jumbo loan refinance. The borrower has to pay a sizeable monthly payment, and the lender must be sure you can afford it and not end up in bad debt. 

Lenders prefer a DTI ratio that does not exceed 43% and ideally is less than 41%. This ratio is calculated by dividing total monthly debt payments by gross monthly income, and it helps lenders assess a borrower’s ability to repay the loan.

Proof of cash reserves

Lenders also require proof of substantial funds. Borrowers are asked to demonstrate they have enough liquid assets to cover several months (often six to twelve months) of mortgage payments, including principal, interest, taxes, and home insurance. This requirement ensures that the borrower can continue making payments even in case of financial distress.

Loan-to-value ratio

The loan-to-value (LTV) ratio is significant in the refinancing process. Typically, lenders require an LTV ratio of 80% or less, which means the borrower must have at least 20% equity in the property — that means you have already paid 20% of the value of your house. 

Some lenders might allow a higher LTV ratio with additional requirements, such as private mortgage insurance.

Employment history

Employment history and income verification are standard requirements. Borrowers must provide recent pay stubs, W-2 forms, or tax returns as proof of income. 

The documentation requirements for self-employed individuals are often more extensive, requiring profit and loss statements and additional tax documentation.

Property appraisal

Finally, the property itself will undergo an appraisal to determine its current market value. This appraisal determines the LTV ratio and ensures the total loan amount does not exceed the property’s worth.

Jumbo Loan Refinance Rates

Jumbo loan refinance rates are usually higher than conventional loans due to the greater risk of lending larger sums of money. 

These rates vary by lender and depend on market conditions, the lender, and the borrower’s financial profile. Factors include credit score, loan-to-value ratio, debt-to-income ratio, and substantial liquid assets. 

As jumbo loans exceed the conforming loan limits set by government-sponsored institutions, they are not subject to the same regulations and pricing as smaller loans, which is why there is so much variation when you compare rates. 

If you are planning to refinance your jumbo mortgage loan, shop around and compare jumbo refinance rates to get the right one for your current mortgage. You may be able to make the most by timing the refinance when market rates are low to maximize your interest savings over the life of the loan, especially given the large principal amounts involved with jumbo mortgages.

Why Should I Refinance My Jumbo Loan?

Lower interest rate

The most common reason for a jumbo refinance is to secure a better interest rate. If interest rates have dropped since the original home loan was obtained, refinancing can lead to significant savings on monthly payments and the total interest paid over the life of the loan. Since jumbo home loans involve more money than usual, the savings can be substantial, even for a 0.5% interest rate. 

Adjust your loan term

Some borrowers might want to shorten their loan term to pay off their mortgage faster and save money on interest payments in the long run. Others may extend the term to reduce their monthly payments for a more manageable financial situation.

Adjust interest structure

Some jumbo loan borrowers want to refinance to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM). The change to a fixed rate adds financial stability and predictability to monthly mortgage payments and protects the borrower from future interest rate increases that could affect their monthly mortgage payments.

Access to home equity

If you have been paying your jumbo loan for some time, you have built home equity. Borrowers can tap into their home’s equity to consolidate debt, fund home improvements, or finance large expenses like education or other real estate investments. If you need a home equity loan, you can apply for a cash-out refinance, where the new loan amount is larger than the existing mortgage, and the borrower receives the difference in cash.

Considerations for a Successful Jumbo Refinance Loan

Assess your financial goals

Assess your financial goals and determine if refinancing makes sense for your situation. Are you looking to lower your monthly payments? Do you want to shorten your loan term? Consider your objective and aim for the best jumbo loan refinance to achieve it. 

Evaluate your credit score

Next, evaluate your credit score. Jumbo loan refinancing typically demands higher credit scores. If your credit score is not as stellar as you require, wait to fix it and then apply for a new jumbo loan. 

Update your financial records

Remember that your lender will check your credit history, income, assets, and debt-to-income ratio. Update your financial records to improve your chances of securing favorable terms.

Consider timing and other costs

Don’t forget to budget for fees, closing costs, and any potential prepayment penalties. Check the breakeven point—the time it will take for your refinancing savings to outweigh the costs—and ensure it meets your financial plans and expectations.

Shop around

Shop around and compare offers from multiple mortgage lenders. Given the significant size of jumbo loans, even a small difference in the annual percentage rate or fees can substantially impact your total payment and savings. 

At Society Mortgage, we offer the most competitive interest rates and loan terms. Contact us to learn more about the pros and cons of refinancing. A Loan Officer will answer all your questions about our jumbo refinance services and help you submit an application!

Frequently Asked Questions

A jumbo loan is a type of mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Because they surpass these limits, Fannie Mae and Freddie Mac cannot purchase or guarantee jumbo loans. The exact threshold varies by location but is typically higher in areas with a high cost of living.
Yes, if the current balance of your jumbo loan has decreased to under the conforming loan limit and you meet other lending criteria, you can refinance your jumbo loan into a conventional loan. This transition can potentially come with lower mortgage rates and reduced lending fees.
Refinancing a jumbo loan can be more challenging than refinancing a conventional mortgage due to stricter underwriting criteria. Jumbo loans exceed the conforming loan limits and are not backed by government-sponsored entities like Fannie Mae or Freddie Mac. Lenders often require higher credit score specifications, lower debt-to-income ratios, and proof of significant assets and financial stability. You can successfully refinance your mortgage if you have a strong financial profile, including a good credit score, stable income, and sufficient equity in your home.
Borrowers can expect to pay between 2% and 6% of the loan amount in refinance closing costs. These can include appraisal fees, origination fees, homeowners insurance, and other related expenses. Given the higher loan amounts of jumbo mortgages, these costs can be substantial, so make sure you have included them in your calculations.
Yes, you can refinance for a bigger loan through a cash-out refinance, where you take out a new mortgage for more than you owe on your current loan and receive the difference in cash. This is commonly done to access the equity built up in the property. For jumbo loans, lenders have stricter criteria for cash-out refinancing, such as credit score requirements, loan-to-value ratios, and reserves. Still, it is possible if you meet these conditions.
The maximum loan-to-value (LTV) ratio on a jumbo cash-out refinance varies by lender and can be more restrictive than conventional loans. Lenders allow a maximum LTV of 70% to 80% for jumbo cash-out refinances. You need at least 20% to 30% equity in your home to qualify. The exact LTV limit is based on various factors, including the borrower’s credit score, financial history, and the property’s location and type.

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