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Jumbo loans are mortgages that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. In most parts of the country, this means a loan larger than $647,200 on a single-unit property. In some higher-priced counties, though, conforming loans can go as high as $970,800.
Because jumbo loans don’t adhere to Fannie and Freddie’s guidelines, they’re not eligible to be purchased by these companies. That, plus their higher balances, makes them a higher risk for lenders. This typically means borrowers must meet stricter standards when applying to refinance.
You can also usually expect to need a strong credit score and several months of cash reserves to refinance your home loan, though these standards vary by lender.
Here’s what else you should know about refinancing a jumbo loan:
- How to refinance a jumbo loan
- Requirements to refinance a jumbo loan
- Benefits of refinancing a jumbo loan
- Drawbacks of refinancing a jumbo loan
- Jumbo loan refinance rates
- When you should refinance a jumbo loan
- Don’t skip shopping around
How to refinance a jumbo loan
The process for refinancing a jumbo loan is similar to that of your original mortgage. You should:
- Compare several lenders: Get quotes from at least three lenders to ensure you’re getting the best jumbo refinance rates and terms. A personalized quote through Credible is free, only takes a few minutes, and doesn’t hurt your credit score. With Credible, you can easily compare your interest rate, monthly payment, and lender fees to choose your best option.
- Gather your financial documentation: Submit the application paperwork including your tax returns, bank statements, assets, proof of income, and credit report. Your loan officer can help you acquire the proper documents.
- Await your appraisal: Your lender typically requires an appraisal to determine your property value and the minimum loan-to-value ratio (LTV) to avoid private mortgage insurance (PMI).
- Attend your closing appointment: You’ll schedule a closing appointment to finalize your mortgage refinance. You’ll receive a Closing Disclosure a few days before the closing date with your new rate and term, and you’ll sign a number of documents pertaining to your loan on the closing date. The appointment can take a few hours to complete.
- Pay your refinance closing costs: You’ll need to pay several closing costs including origination fees, title fees, and escrow fees. You can usually pay these via wire transfer or cashier’s check. It’s possible to roll some of these fees into the loan if you’re willing to pay a higher annual percentage rate (APR).
Learn More: How to Refinance Your Mortgage in 4 Easy Steps
Requirements to refinance a jumbo loan
Jumbo loan requirements vary from one lender to the next, but you can generally expect to be held to higher standards than you would on a conforming loan or FHA loan.
Here’s a look at some general requirements you might need to meet to qualify:
|Min. credit score||Sometimes as low as 680, but typically 700 or higher|
|Max debt-to-income ratio||38% to 43%|
|Loan-to-value ratio||Up to 90%|
|Cash reserves||6 to 18 months of payments|
Find Out: How to Refinance an Investment Property
You’ll also need to provide some financial documents to qualify for the mortgage refinance, including:
- Your most recent W-2s, 1099s, and tax returns
- Proof of employment
- Recent paystubs
- Statements for any bank accounts and retirement accounts
Closing costs are also required. You can usually expect to pay between 2% to 5% of the total loan balance in closing costs, though these vary by lender.
In some cases, you might qualify for a no-closing-cost refinance, which essentially means your closing costs are rolled into the loan balance.
Benefits of refinancing a jumbo loan
Here are some ways refinancing your jumbo loan can affect your mortgage:
- Lower interest rates: You can lower your interest rate which may also reduce your monthly payment. Paying less lifetime interest gives you more money to pay for other expenses.
- Get a fixed interest rate: If you currently have an adjustable-rate loan, switching to a fixed-rate loan protects yourself from rate adjustments. Your monthly payment and interest costs remain the same for the entire loan term.
- Modify your repayment term: Opting for a shorter-term loan means a higher payment, but a faster payoff. You can also keep or extend your current repayment term if you need a smaller monthly payment.
- Tap your home equity: With a cash-out refinance, you take out a new loan that’s higher in balance than your current one and can withdraw some of your current equity. You then receive the difference as a lump-sum payment to use for many purposes including home improvements and consolidating debt.
- Available in high-cost areas: Jumbo mortgages are available to homeowners in expensive regions where home values exceed Federal Housing Finance Agency (FHFA) conforming limits and you don’t qualify for a conventional mortgage. Many property types qualify including primary residences, second homes, and investment properties.
Keep Reading: How Often Can You Refinance Your Mortgage?
Drawbacks of refinancing a jumbo loan
Here are several disadvantages of refinancing your jumbo mortgage:
- Stricter underwriting guidelines: Jumbo mortgage loans exceed the conforming loan limits and aren’t purchased by Fannie Mae or Freddie Mac. As a result, your lender may require an excellent credit score, higher annual income, more cash reserves, and a lower debt-to-income (DTI) ratio.
- Higher closing costs: Just like your original home purchase loan, you’ll pay several closing costs including origination costs, underwriting fees, appraisal fees, title insurance, and prepaid taxes and escrow. Since jumbo loans are more expensive than conforming loans, you can expect higher closing fees. Total closing fees typically range between 2% and 5% of the loan amount.
- Higher interest rates: Because of strict jumbo loan requirements and higher loan amounts, this loan type usually has higher APRs than conforming loans.
- More lifetime interest: You may pay more interest over the life of your loan if you extend your repayment term. This is a possibility even if you secure a lower interest rate.
- Private mortgage insurance: Your lender will require PMI payments if your home equity is below 20%. This fee increases your mortgage payment and can also make it harder to qualify for financing if you cannot afford the additional amount.
Jumbo loan refinance rates
Jumbo loan rates fell to a historic low in December 2020, with 30-year fixed jumbo rates dropping to approximately 2.812%, according to data from the Federal Reserve Bank of St. Louis.
To illustrate how current jumbo loan refinance rates compare to other mortgage loan types, here’s a recent sample of fixed refinance rates found on Credible:
|Loan type||Interest rate|
|30-year fixed jumbo||3.500%|
|15-year fixed jumbo||3.125%|
Jumbo loans are also available as adjustable-rate mortgages (ARMs). With an ARM, you have a fixed-rate for the first portion of the loan before the loan’s interest rate can adjust periodically.
When you should refinance a jumbo loan
Refinancing a jumbo loan can be smart a smart decision if:
- Mortgage rates are lower than your current rates. This is probably the most popular reason people choose to refinance: to save money on interest.
- You have a change in your financial situation. If you’re making more money, for example, you might consider refinancing into a shorter-term loan, allowing you to pay off the loan sooner (and with less interest).
- You want a different loan type. If you want to refinance into a fixed-rate loan from an ARM, for example, you can do that by refinancing.
- You want to take cash out of your home. You could get a cash-out refinance which would allow you to refinance your loan at a higher amount than the current one — then you would get a check for the difference.
Learn more: Mortgage Refinancing Calculator
Don’t skip shopping around
Jumbo loans can be risky products for lenders, so they tend to vary greatly from one company to the next. Make sure you compare multiple lenders to ensure you’re getting the best loan for your needs and budget.
Credible makes it easy to see what refinance offers you’re eligible for and compare them — and you can do it all at once without having to visit multiple lenders.
Aly J. Yale contributed to the reporting for this article.