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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 $510,400 on a single unit property. In some higher-priced counties, though, conforming loans can go as high as $765,600.
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:
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.
Since refinancing comes with closing costs, you’ll want to make sure you’ll be in the home long enough to break even on those fees. Basically, you should be saving more money than you paid to refinance the loan.
Find Out: When to Refinance a Mortgage: Is Now The Best Time?
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 |
| Properties |
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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.
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 to ensure you’re getting the best rates and terms.
- Gather up your financial documentation (noted above) and submit it to your chosen lender.
- Await your appraisal, which is typically ordered by the lender.
- Attend your closing appointment and sign the paperwork.
- Pay your refinance closing costs, usually via wire transfer or cashier’s check.
Make sure you update any autopayments appropriately if necessary, too.
Learn More: How to Refinance Your Mortgage in 4 Easy Steps
How refinancing a jumbo loan impacts your mortgage
Here are some ways refinancing your jumbo loan can affect your mortgage:
- It can reduce your interest rate. You could lower your interest rate which might also get you a lower monthly payment.
- It might change the type of interest rate you have. If you currently have a variable-rate loan, you might opt to refinance into a fixed-rate loan to protect yourself from rate increases down the line.
- It could shorten or lengthen your loan term. Opting for a shorter-term loan would mean a higher payment, but a faster payoff. A longer-term loan would likely lower your monthly payment but mean more paid in interest over the long haul.
- It can allow you to take cash out of your home. With a cash-out refinance, you take out a new loan that’s higher in balance than your current one. You then get the difference between the two balances in cash.
Tip: It’s possible to combine many of these effects, as well. But your options depend on your personal situation, how much equity you have in the home, and the lender you choose.
Keep Reading: How Often Can You Refinance Your Mortgage?
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 Operations, Inc. 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.
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