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What It Takes to Refinance a Jumbo Loan

A loan-to-value ratio no higher than 80%, a minimum 660 credit score and well-documented income history are common requirements.
Managing Your Mortgage, Mortgages
What It Takes to Refinance a Jumbo Loan
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Refinancing a jumbo loan isn’t for the faint of heart. Get ready for tough application requirements and demands for documentation.

“I tell everybody — we kind of joke about it — you’ve got to give over your blood type and your firstborn,” says Christy Bunce, chief operations officer at New American Funding, a California-based family-owned mortgage bank. Bunce says jumbo mortgages are about 10% of its business.

But the effort to refinance a jumbo loan — a mortgage that exceeds Freddie Mac’s and Fannie Mae’s conforming loan limits of $453,100, in most cases, and up to $679,650 or more in some high-cost areas — can be well worth it. Even a small drop in interest rate can add up to big savings on these large loans, Bunce says.

What are some reasons for refinancing?

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.

“We’ll see borrowers that maybe are towards the end of their ARM and they’re going to go into another ARM,” Bunce says.

Of course, reducing monthly payment and interest rate also are motivations for refinancing.

If you’re thinking of refinancing your jumbo loan, the first step is to calculate whether refinancing is worth it. If so, then you’ll want to understand the requirements.

What does it take to qualify for a jumbo loan refinance?

Here’s what lenders and investors may require from borrowers who seek a jumbo loan refinance:

  • 660 FICO score
  • Maximum debt-to-income ratio of 43%
  • Loan-to-value ratio of no more than 80%
  • No more than four mortgaged properties
  • No bankruptcies within the past seven years
  • Proof of cash and other liquid reserves

» MORE: Check your credit score for free

To document income, borrowers will need, at a minimum:

  • Two years’ annual tax returns
  • Two years’ W-2 forms
  • 30 days of pay stubs
  • 60 days of bank statements

Employees using bonuses and commissions to qualify will need two years of documentation for those, too, says Tracie Southerland, a mortgage loan originator at Opes Advisors, a division of Flagstar Bank.

Self-employed borrowers or those with partnerships might be asked for a profit and loss statement and balance sheet.

Also, borrowers should be prepared to explain and document the source of large or unusual deposits on their bank statements.

» MORE: Calculate your debt-to-income ratio

What loan-to-value ratio do you need for a jumbo loan?

In most cases you’ll need a loan-to-value ratio — the amount you owe on your home relative to your home’s value — that’s no higher than 80%. This means you’ll have at least 20% equity in your property. There’s still hope of refinancing if you have just 10% or 15% equity, but these circumstances require a 700 FICO score, at least, and come with a higher interest rate, Bunce says.

Are interest rates and fees different for a jumbo refinance?

Jumbo interest rates generally don’t vary much from conforming loan rates, Southerland says. The biggest factor is you: “Whether it’s a purchase or refinance, the interest rate that someone can get on jumbo is going to be very much driven by their credit score and their loan-to-value [ratio],” she explains.

The interest rate that someone can get on jumbo is going to be very much driven by their credit score and their loan-to-value.

Tracie Southerland, mortgage loan originator, Opes Advisors

The kinds of fees and closing costs you’ll pay 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, Bunce says — especially on mortgages over $1 million — potentially doubling that fee.

Are there any requirements unique to jumbo loans?

Yes, here are a few that may come up:

  • Reserve requirements. 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. “So, if you are in a jumbo loan and your monthly principal, interest, taxes and insurance payment is $6,000, then your reserve requirement [for 12 months] is $72,000,” Southerland says. Depending on the investor, your retirement accounts may count as cash reserves, although their value may be discounted.
  • Longer wait after bankruptcy. For a jumbo loan refinance, you’ll need to wait seven years after a bankruptcy, Bunce says. You can shorten that time, though, by paying a “much” higher interest rate, she adds. For a typical, conforming mortgage, you may wait only two years, depending on your lender, your bankruptcy type and your circumstances.
  • Limits on multiple mortgages. Many investors stipulate that jumbo refinance borrowers who own multiple properties may have no more than four that are mortgaged.

What’s involved in getting cash out in a jumbo refinance?

As home values rise, homeowners are refinancing to extract some of their new wealth. “We are seeing a lot of cash out,” often for home improvements or paying down debt, Bunce says.

A cash-out refinance involves replacing 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.

A cash-out refinance involves replacing 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, Bunce acknowledges. “But when you’re refinancing a jumbo loan and you’re getting a really good rate, it does save you quite a bit of money. Even going down a quarter of a percent on the rate if you got a loan amount of $700,000 or something, it’s a huge savings to a lot of customers.”

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