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.

In this article, we’ll review the process of getting a jumbo loan refinance and go over some of the benefits of doing so. We’ll also give you some examples of how your loan might change.

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

It’s much 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 program.

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. For 30-year fixed loans, you'll usually need a median credit score of at least 680 points. For 15-year fixed and ARMs, you'll need a credit score of 700 or higher. Keep in mind that your lender might even require you to have a score as high as 760 points if you're refinancing an investment or rental property with your loan.

• Debt-to-income ratio (DTI): Your debt-to-income ratio tells lenders how much of your monthly income goes to recurring bills. You’re a riskier bet for lenders because you’re less likely to have an emergency fund if your DTI is high. To qualify for a jumbo loan refinance, your lender might require that you have a DTI ratio of no more than 36%. This number is lower than the industry standard of 50% for most conventional loans.

• 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. Though cash reserve requirements vary by lender, it’s not uncommon. For loan amounts below $1 million at Rocket Mortgage®, you’ll need 6 months’ worth of reserves. For amounts over $1 million, a year is required.

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 a jumbo loan. It can take as long as 7 years for a foreclosure or bankruptcy to be removed from your credit history.

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.

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 value 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).

Jumbo loans sometimes go through a manual underwriting process before approval, so the process can take longer compared to a conventional mortgage. A financial expert will look over your bank statements, W-2s and other documentation personally rather than using underwriting software to assess whether there are any red flags your lender should be aware of. 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.

Jumbo loan refinances work basically the same way as regular refinances. You can change several features of your mortgage through 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 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 adjustable-rate mortgage (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.

Take Cash Out Of Your Equity

You may want to consider a jumbo cash-out refinance if you need money to cover bills or home repairs. Cash-out refinances allow you to take money out of your home that you’ve built through equity. In exchange, you take on a higher principal amount.

Imagine that you have a home loan with a $600,000 principal balance, and you want to pay off $50,000 of credit card debt. With a cash-out refinance, you would accept a loan with a principal balance of $650,000. In exchange, your lender would give you $50,000 in cash a few days after closing.

Cash-out refinances can be very beneficial if you have a large amount of debt you need to cover and a substantial amount of home equity. Mortgage interest rates are significantly lower than other types of debt. This means that you can potentially save thousands of dollars when you consolidate your debt into your home loan.

However, there is often a limit on the amount of money you can take out of your equity – especially on a high-value jumbo loan. Most lenders require that you leave 20 – 30% of your equity in your home after you refinance a jumbo loan. That means if you’re still very early in your loan’s term, you may not qualify for a cash-out refinance.

Furthermore, you may be able to change more than one part of your loan when you refinance. For example, if interest rates are lower now and you’re shortening your term, you can save even more on interest.

Keep in mind that not every lender offers jumbo loan refinancing. Lenders may not want to take the risk of a large value loan, or they may limit the amount of money they’ll refinance. For example, you can refinance up to $2.5 million in principal on a 30-year fixed and up to $2 million in principal on a 15-year fixed when working with Rocket Mortgage.

Think a jumbo loan refinance might be right for you? If so, you have a few options on how to proceed.

Should you refinance with your 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 you choose a new lender?

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.

How can you tell if you should 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 or if your debt is higher now than when you got your loan. You also might not qualify for cash-out options if you’re early in your loan’s term.

If you don’t think that refinancing is right for you, but are 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.

If you’re ready to move forward with the jumbo loan refinancing process, the next step is to shop around for the best deal. 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, just be sure to compare apples to apples.

Simply provide your current or potential new lender with a few key pieces of information, such as home value, mortgage balance, income, assets, etc. and you’ll receive a personalized rate quote after your credit is pulled. This process can also be completed using one of several available online refinance rate estimators. 

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 is 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 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? Explore your mortgage options with Rocket Mortgage today!