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Refinancing a jumbo loan isn’t for the faint of heart. Get ready for tough application requirements and extensive demands for documentation.
But the effort to refinance a jumbo loan — a mortgage that exceeds Freddie Mac’s and Fannie Mae’s conforming loan limits of $647,200, in most cases, and up to $970,800 or more in some high-cost areas — can be well worth it. Even a small drop in the interest rate can add up to big savings with these large loans.
Why refinance a jumbo mortgage loan?
With rising home prices pushing up home equity, many homeowners are interested in refinancing their jumbo loan to pull cash out. Those who have adjustable-rate jumbo mortgages also may be looking to refinance. Of course, reducing a monthly payment and interest rate also are motivations for refinancing.
If you’re thinking of refinancing a jumbo loan, the first step is to crunch some numbers to see whether refinancing is worth it. If so, then you’ll want to understand the requirements.
Requirements for a jumbo loan refinance
Here’s what lenders and investors may require to refinance a jumbo loan:
Minimum 660 FICO score.
Maximum debt-to-income ratio of 43%.
Maximum loan-to-value ratio of 80%.
No more than four mortgaged properties: Many investors stipulate that jumbo refinance borrowers who own multiple properties may have no more than four that are mortgaged.
No bankruptcies within the past seven years: In contrast, your waiting period may be as little as one year with a conforming loan, depending on your lender, the type of loan, your bankruptcy type and your circumstances.
Proof of cash and other liquid reserves: You may be asked to show that you have enough cash and other liquid reserves to cover the loan’s principal, interest, taxes and insurance for several months or even a year. Depending on the investor, your retirement accounts may count as cash reserves, although their value may be discounted.
“You may be asked to show that you have enough cash and other liquid reserves to cover the loan’s principal, interest, taxes and insurance for several months or even a year.”
To document income for a jumbo refinance, at a minimum you'll need:
Two years of annual tax returns.
Two years of W-2 forms.
30 days of pay stubs.
60 days of bank statements.
Using bonuses and commissions to qualify? You'll need two years of documentation for those, too. If you're self-employed or in a partnership, you might be asked for a profit and loss statement and balance sheet. Also, you should be prepared to explain and document the source of any large or unusual deposits on your bank statements.
Are jumbo refinance rates and fees different?
Jumbo refinance rates generally don’t vary much from conforming loan rates. Your credit score and loan-to-value ratio will play the biggest roles in determining the rate you're offered. It pays to shop multiple lenders, to see who'll give you the best rate: Even a fraction of a basis point can make a huge difference to the lifetime cost of a jumbo loan.
Jumbo loan fees and closing costs are similar to other mortgages. But since many fees are a percentage of the loan amount, you can end up paying more on a jumbo loan refinance. Plus, there’s this: Lenders may want two appraisals — especially on mortgages over $1 million — potentially doubling that fee.
» MORE: Estimate what you'll pay with our closing costs calculator
What does a jumbo cash-out refinance entail?
As home values rise, homeowners may refinance to extract some of their new wealth. A cash-out refinance replaces your existing mortgage with a new mortgage for an amount that’s more than you owe on your home. You get to keep the extra amount in cash.
Banks vary in how much equity you’ll be able to extract, and rates can fluctuate slightly from day to day and bank to bank. So shop around for quotes, compare your offers and look for a mortgage advisor you have confidence in. The documentation involved in a jumbo refinance can be formidable, but your long-term savings could be well worth it.