How to refinance a jumbo loan

A jumbo loan is a high-value loan used to buy a home that exceeds the conforming loan limits established by Fannie Mae and Freddie Mac. You can refinance a jumbo loan, but in order to qualify, you’ll need to provide extra documentation and meet higher standards than you would if you were to apply to refinance a standard mortgage loan.

Before you apply, it’s important to understand the process of getting a jumbo loan refinance, as well as the benefits of refinancing a jumbo loan. Additionally, looking at some examples of how your loan might change and learning how to shop around for the best jumbo loan refinance rates can help you go into your refinance feeling more confident.

When can you refinance your jumbo loan?

No specific rule dictates how long you must wait to refinance after getting your jumbo loan. However, lenders who issue jumbo mortgages often have higher standards for homeowners compared to conventional mortgages.

It’s often more difficult to find a lender willing to refinance a jumbo loan. That’s because, depending on your lender, jumbo loans might not have mortgage insurance like conforming loans do. Bigger loans also have more risk, which means lenders have to be a lot pickier about who they approve for a jumbo loan refinance.

What are the qualifications to refinance a jumbo loan?

Qualifying for a jumbo loan refinance is often more difficult than qualifying for a traditional mortgage refinance. Here are a few qualification standards you might have to meet before you can refinance your jumbo loan.

Credit score

The precise credit score you’ll need to qualify for a jumbo loan refinance will depend on the loan terms.

• 30-year fixed loans: You’ll usually need a median credit score of at least 680.
• 15-year fixed loans: You’ll need a credit score of 740 or higher.
• Adjustable-rate mortgages (ARMs): You'll need a credit score of 740 or higher.
• Refinancing an investment or rental property: Your loan might require you to have a score as high as 720 points.

Debt-to-income ratio (DTI)

Your debt-to-income ratio (DTI) tells lenders how much of your monthly income goes to recurring bills. To qualify for a jumbo loan refinance, your lender might require that you have a DTI of no more than 45%, which means you’ll need a lower DTI than you might need in order to qualify for a conventional loan.

Cash reserves

Your lender needs to know that you have enough money coming in to cover your monthly payments. This requirement is especially true for higher-risk jumbo borrowers. Your lender may ask to see your bank statements to prove that you have enough cash reserves to continue paying your loan if you fall into financial hardship. I’m 

Cash reserve requirements vary by lender. For loan amounts below $1 million at Rocket Mortgage^®, you’ll need 6 months’ worth of reserves. For amounts over $1 million, a year of reserves is required.

No recent bankruptcies

Refinancing after a bankruptcy is possible, but you may face delays. You’ll probably need to wait until this negative item expires before you can refinance. In most cases, a bankruptcy must be discharged or dismissed for 7 years or more before you can refinance a jumbo loan.

How to shop for jumbo loan refinance rates

Just like applying for a mortgage, it’s important to compare offerings from different mortgage lenders to find the right mix of refinance rates, terms and fees.

Simply provide your current or potential new lender with a few key pieces of information, such as your home value, mortgage balance, income, assets, etc. and you’ll receive a personalized rate quote after your credit is pulled.

Complications of refinancing a jumbo loan

You should also keep in mind that jumbo loan refinances have a few more complications than standard refinances. This difference is usually due to two separate factors: higher closing costs and manual underwriting.

Higher closing costs

Closing costs are higher on jumbo loan refinances because they have higher principal balances. You can generally expect to pay 3% – 6% of your total loan amount in closing costs when you refinance. For example, refinancing a $600,000 jumbo loan means that you can expect to pay $18,000 – $36,000 in cash upfront at closing (unless you roll it into your loan and increase your principal balance along with a potentially higher rate).

Manual underwriting

Jumbo loans sometimes go through a manual underwriting process before approval, so the process can take longer compared to a conventional mortgage.

Rather than using underwriting software, with manual underwriting a financial expert will look over your bank statements, W-2s and other documentation personally to assess whether or not you qualify for the mortgage.

If you have a serious negative item on your credit report or a lack of cash reserves, your lender will see it. This extra measure means that you might need to wait until you’ve increased your funds or until the item expires from your credit report before you apply for a refinance.

It’s worth noting that because Jumbo Smart loans from Rocket Mortgage follow Fannie Mae documentation deadlines, we’re able to leverage more technology and automation to enable a smoother refinance process for our clients.

How can a jumbo loan refinance affect your mortgage?

Jumbo loan refinances work basically the same way as regular refinances. You can change several features of your jumbo mortgage by refinancing.

Lengthen your loan term

You give yourself more time to pay off your loan when you lengthen your loan term because you lower your monthly payment. However, keep in mind that you’ll end up paying more in interest over time.

Shorten your loan term

You also have the option to shorten your loan term. Depending on your interest rate, you often take on a higher monthly payment when you shorten your term. However, you’ll also own your home sooner and pay less in interest. Shortening your term can be a good idea if your income is higher than when you applied for your original loan.

Take a lower interest rate

Are mortgage rates lower now than they were when you bought your home? If they are, you can save money when you refinance at a lower rate. Just a fraction of a percentage difference might save you thousands of dollars on a jumbo loan, so it’s often a good idea to refinance if you can get a lower rate.

Change your interest structure

A refinance can also allow you to adjust the way that you pay interest. If you currently have an ARM, you may want to refinance to a fixed-rate mortgage. Fixed-rate mortgages allow you to pay the same percentage in interest every month, so they keep your monthly payments more predictable.

You can also transition from a fixed-rate mortgage to an ARM with a jumbo loan refinance. If you plan to pay off your home early, an ARM can give you access to lower introductory rates. This change can also be beneficial if you plan to sell your property soon.

Can you take cash out with a jumbo loan?

If you need money to cover bills or home repairs, or to consolidate your debt into your home loan, you may want to consider a jumbo cash-out refinance. A cash-out refinance allows you to take money out of your home that you’ve built through equity. In exchange, you take on a higher principal amount.

You may also be able to adjust your loan term to get a lower interest rate or adjust your loan terms to pay off your mortgage sooner, which can save you money on interest in the long run.

Equity limits on jumbo loans

There’s often a limit on the amount of money you can take out of your equity – especially on a high-value jumbo loan. While conventional loans may allow you to leave as little as 3% – 20% of your equity in your home when you refinance, most lenders require you to leave 20% – 35% of your equity in your home after you refinance a jumbo loan. That means if you’re still very early on in your loan’s term, you may not qualify for a cash-out refinance.

Keep in mind that not every lender offers jumbo loan refinancing. They may also limit the amount of money they’ll refinance depending on the loan option.

Jumbo loan refinancing FAQs

Think a jumbo loan refinance might be right for you? Here are some answers to frequently asked questions centered around refinancing a jumbo loan.

Should I refinance a jumbo loan with my current mortgage lender?

Working with your current lender is an option for getting a jumbo loan refinance. Your current lender has a history with you and already understands your financial situation. A solid history of timely payments may mean they’re more willing to be flexible with credit and reserve standards when you refinance. Contact your current lender and ask about the jumbo loan refinance application process.

Can I choose a new lender for a jumbo loan refinance?

You can apply for a refinance with a new lender if you can get a better deal or if you’re unsatisfied with your current one. Research lenders in your area that offer jumbo loan refinancing and ask about their lending limits. Know your principal balance before you call so you can quickly see whether you qualify.

Apply for refinancing when you find a lender you want to work with. Many lenders now allow you to submit an application online, but this process can vary by company.

When can I get a good refinance jumbo mortgage rate?

You’re more likely to get a better interest rate on your jumbo mortgage refinance if your credit has improved significantly since you took out your original jumbo loan or interest rates across the industry have gone down. Otherwise, you may not qualify for a better interest rate.

Should I wait to get a jumbo mortgage refinance?

In some circumstances, the smartest thing to do is wait to refinance your loan until your financial situation improves. For example, you’ll have a tough time finding a lender to service your refinance if you don’t meet credit requirements, your DTI is higher now than when you got your loan or you’re early on in your loan’s term.

Can I modify my jumbo loan rates without refinancing?

If you don’t think that refinancing is right for you, but you’re still having trouble making your payments, you may want to request a loan modification. This feature makes a direct change to the conditions of your loan made by your current lender. You can modify your loan to take a longer term or lower interest rate.

However, your lender must agree to the modification. Contact your mortgage servicer or loan officer to find out if you qualify for a modification.

The bottom line: Consider the benefits of refinancing a jumbo mortgage loan

Refinancing a jumbo loan is more difficult than refinancing a conforming loan, but it isn’t impossible. Make sure you meet your lender’s credit, debt and reserves standards before you apply. There’s no universal rule that says you must have your jumbo loan for a certain amount of time before you refinance. However, individual lenders can set their own standards when it comes to who qualifies for a jumbo loan refinance.

You can change your loan’s term or interest structure or take cash out of your equity with a cash-out refinance. Remember that not every lender offers a jumbo loan refinance and might have limits on the principal balance they’ll refinance. Begin by contacting your current lender or comparing lenders in your area that offer jumbo loan refinancing if you think you qualify.

Ready to refinance your jumbo loan? Start your application with Rocket Mortgage today!