How to refinance a jumbo mortgage
Quick insights
- Refinancing a jumbo mortgage could lower your mortgage interest rate, adjust your loan term or access cash.
- Some homeowners may choose to refinance a jumbo mortgage loan when market rates drop or their financial situation improves enough to secure better terms.
- Because jumbo loans exceed conforming limits, mortgage lenders apply stricter standards, making preparation and a strong financial profile important. You may need excellent credit, low debt levels and solid savings to qualify.
Jumbo mortgages are helpful when purchasing high-value homes where mortgage financing exceeds conforming loan limits. Conforming mortgage limits are set by the Federal Housing Finance Agency (FHFA). These loans are purchased by government-sponsored enterprises like Fannie Mae® and Freddie Mac®, reducing the lender’s risk if you default. Jumbo loans are usually kept by the lender, so lenders want to ensure you’re financially secure and will repay the loan.
Because of this added risk, many borrowers may wonder, “Can you refinance a jumbo loan?” The answer is yes, but qualification differs from standard mortgage loan options.
The jumbo refinancing process
As a homeowner, you may already know how strict jumbo loan requirements can be. The same applies when refinancing. Mortgage lenders typically expect stronger financials compared to conforming loans. When refinancing a jumbo mortgage loan, mortgage providers typically evaluate the following factors:
- Credit score: Your credit score is used to check your financial responsibility. Jumbo mortgage lenders generally prefer borrowers with high scores.
- Debt-to-income ratio (DTI): Your DTI ratio measures your monthly gross income compared to your current debts.
- Cash reserves: You may need enough savings to cover several months of mortgage payments—principal, interest, taxes and insurance (PITI).
Overall, the jumbo loan refinance process mirrors a traditional refinance but with tighter standards and more scrutiny.
Documents required for refinancing
When you apply for jumbo refinancing, your lender needs proof of your income and assets. To start the refinancing process, you’ll likely need the following documents:
- Two years of annual tax returns, including W-2 forms
- Most recent pay stub or other proof of income
- Past 60 days of bank statements
- Profit/Loss and balance sheet for self-employed borrowers
- Documentation of any other income, including commissions, bonuses and other deposits
Jumbo refinance considerations
It’s important to show lenders that you have a strong credit profile and stable financials (assets and cash reserves). But there are other factors that could affect your application. These include bankruptcy and foreclosure, closing costs and processing time.
Bankruptcy and foreclosure
Even with a high credit score, a bankruptcy or foreclosure on your credit report can make lenders unsure. You probably need to wait until they’ve fallen off your credit report, which can take years.
Closing costs
Although you already paid closing costs for your initial jumbo mortgage, you may have to pay additional costs when you refinance. Depending on the terms of your refinance, closing costs can be paid upfront or rolled into your monthly payment.
Longer processing time
Because jumbo refinancing is manually underwritten, it may take longer to process than standard refinancing. The volume of documentation takes time to review. Additionally, lenders will take a closer look at everything from your credit score and debt obligations to your assets and monthly income. If they see any red flags, the process could be delayed. Or they may ask you to reapply later. You’ll then need to spend time fixing the issues before applying again.
When is the best time to refinance a jumbo loan?
You can pursue a jumbo loan refinance at any time, but timing still matters. Established, trusted lenders can offer jumbo refinancing at competitive rates.
If you’re planning to refinance a jumbo loan, you might consider waiting if:
- Your credit score needs improvement
- You have recent negative marks on your credit report
- Your cash reserves are limited
Working with a trusted mortgage lender is very important when refinancing a jumbo mortgage loan. Not all lenders offer competitive jumbo products and interest rates.
Advantages and disadvantages of refinancing your jumbo mortgage
Whether you’re refinancing to adjust your interest rate, alter the length of your loan or free up some cash flow, refinancing your jumbo mortgage is involved. Consider the pros and cons before you move forward.
Advantages of jumbo refinancing
- Higher mortgage financing: Jumbo refinancing is not limited by the FHFA limits.
- Single payments: Rather than getting multiple loans, you can get one mortgage for one regular payment.
- Lower interest rates: Depending on the market, you may be able to get a better interest rate when you refinance.
- Financial liquidity: You could free up additional cash flow by refinancing.
- Shorten or lengthen the term: You may adjust your loan term. Shortening the term may help you save on interest, while a longer term may reduce your monthly payments.
Disadvantages of jumbo refinancing
- Possible higher interest: Small differences in interest rates add up quickly in jumbo loans. Shop around for the best interest rate when refinancing your loan.
- Difficult process: Jumbo loans come with higher risks for the lender, which makes the refinancing process time-consuming. This also means the requirements can be stricter than conforming mortgages. Lenders usually look for high credit scores, low DTI ratios and good cash reserves.
- Limits on cash-out refinancing: There are limits on the amount of money you may take out with jumbo refinancing. The limits vary between lenders, so it’s best to get more than one quote for a good comparison.
In summary
If you’re ready to refinance your jumbo mortgage, compare multiple mortgage lenders carefully to find the best refinance rates and loan terms. Consult with a Home Lending Advisor to help you understand your options and prepare a competitive application. Use a mortgage calculator to decide if the new terms are within your budget. When you’re ready, take the next step and apply for a jumbo mortgage.
FAQs
How often can I refinance my jumbo mortgage?
There’s no strict limit on how often you can refinance your jumbo mortgage, but lenders may require a waiting period between refinances. It’s usually best to refinance when it provides a clear financial benefit, such as lowering your interest rate or improving your loan terms.
Can I refinance my jumbo mortgage loan if I have an adjustable-rate loan?
Yes, you may refinance an adjustable-rate jumbo loan into another adjustable-rate loan or switch to a fixed-rate loan. Many borrowers choose to refinance to gain more predictable monthly mortgage payments.
How do I know if refinancing my jumbo mortgage loan is the right decision for me?
Refinancing makes sense if you can lower your refinance interest rate, reduce your monthly mortgage payment or meet another financial goal (like accessing equity). Reviewing your long-term savings, closing costs and current financial situation can help you decide if moving forward is worthwhile.
