Jumbo loans are just that: jumbo. For 2023, conforming loan limits for houses in most counties — set by the Federal Housing Finance Agency — are $726,200. If you want to buy a more expensive home and need to finance more than that limit, you’ll be in the market for a jumbo loan.
Homeowners often refinance traditional (i.e., conforming) mortgages to get a lower interest rate, change their loan terms, or tap into home equity. But what about homeowners with a jumbo loan: Can they refinance as well?
A mortgage refinance for a jumbo loan is possible, but it may be a little more complicated. Let’s have a look at the process of a jumbo loan refinance.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
When Can You Refinance a Jumbo Loan?
There is no set timeline for refinancing a jumbo mortgage loan. In theory, you could refinance at any point during your loan, but lenders typically have strict requirements before approving a jumbo mortgage refinance. If you’ve been paying down the loan for a while, it’s possible your refinance would fall within the conforming loan limits. To determine whether or not this is the case, take a look at the conforming loan limits for your specific area. If you still need a jumbo mortgage loan, this is what you’ll want to consider:
Credit Score
Unsurprisingly, getting approved for a jumbo refinance means you’ll need a strong credit score. To refinance to a 30-year fixed-rate loan, lenders typically want to see a credit score of 680 or higher. Refinancing to a 15-year fixed or adjustable-rate mortgage has an even tougher credit score threshold: 700 or higher. And if you’re looking for a refinance for an investment or rental property, you may need a credit score as high as 760.
Recommended: Does Having a Mortgage Help Your Credit Score?
Debt-to-Income Ratio
Similarly, lenders will analyze your debt-to-income (DTI) ratio when reviewing your jumbo refinance application. While lenders typically want a DTI of 50% or lower for conventional loans, you may need a DTI as low as 36% when refinancing a jumbo mortgage loan.
Cash Reserves
Lenders will also typically want to see that you have cash reserves set aside. The amount of mortgage reserves you need will vary by lender but could be as much as six months’ worth of mortgage payments in liquid assets, more if you are self-employed.
Other Considerations
In addition, lenders may consider your payment history. If you have made one or more late payments on your current jumbo mortgage loan, you might not get approved for a refinance.
Other lenders may want you to have a certain amount of equity in your home before permitting a refinance.
And if you’ve filed for bankruptcy, it can be much more challenging to refinance. You’ll usually need to wait until the bankruptcy (or a past foreclosure) vanishes from your credit history — potentially 10 years.
💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.
Jumbo Loan Refinance Requirements
Assuming you have the right qualifications for a jumbo refinance, here’s what you’ll typically need to provide to the lender:
• Two previous months of bank statements
• Proof of income, like your most recent pay stub
• Tax returns from the last two years, including all W-2s
• A profit/loss and balance sheet if you’re self-employed
• Any other documentation of income, such as 1099s, that can help your chances of approval
Of course you’ll also have to go through all the steps of refinancing a mortgage that would be required with any loan.
💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.
Pros and Cons of Refinancing a Jumbo Loan
As with regular refinancing, jumbo mortgage refinances have a number of pros and cons to consider:
Pros
• Faster payoff: If you refinance to a mortgage with a shorter term, you’ll pay off your home sooner — and be free from that high monthly payment.
• Less interest: If you get a lower interest rate, you could save money over the life of the loan.
• Predictable payments: If you switch from an adjustable-rate mortgage to a fixed-rate loan, your monthly payments will be locked in.
• No more PMI: You may be able to get rid of private mortgage insurance when you refinance your loan.
• Home improvements: If you do a jumbo cash-out refi, you can leverage the equity you have in your home to make home improvements. You could also use the money to pay down debt or cover college costs.
Cons
• Closing costs: Refinancing a home loan means you’ll have to close again, and that can get expensive. According to Freddie Mac, closing costs when refinancing average about $5,000.
• Larger monthly payments: If you shorten your loan term when refinancing, be prepared for larger monthly payments. You’ll want to feel confident that if you face a job loss, have a new baby, or experience another big life change you can still afford the higher monthly payment.
• Lost equity: With a cash-out refinance, you borrow against the equity in your home. While it’s helpful for funding home improvements or paying down high-interest debt, you lose out on that equity you’ve built.
Recommended: How Much Does It Cost to Refinance a Mortgage?
How Will Refinancing a Jumbo Loan Affect Your Mortgage?
Refinancing a jumbo loan can have a few intended effects, including:
Lower Rate
Mortgage rates fluctuate over time. If rates drop, you might want to refinance to take advantage of the lower interest rate.
Longer Loan Term
If your current monthly mortgage payment is too high for you to handle, you may be able to lower it by refinancing and lengthening the loan term. Keep in mind, you’ll likely pay more in interest over the life of the loan — but the tradeoff for lower monthly payments might be worth it.
Shorter Loan Term
On the flip side, you might be able to shorten the length of your loan by refinancing. Your monthly payments may go up, but you’ll likely pay less in interest, and you’ll be free from the burden of a mortgage payment significantly sooner.
Take Cash Out of Equity
Many homeowners do a cash-out refinance to take advantage of some of the equity they’ve built in their home. You might refinance to get a nice lump sum to put toward home renovations, high-interest credit card debt, or another big expense.
Change Interest Structure
If your jumbo loan is an adjustable-rate mortgage, you may have trouble predicting your monthly payments. When you refinance to a fixed-rate loan, you’ll get more dependable monthly payments, which can make it easier to budget.
The Takeaway
Refinancing a jumbo mortgage is possible and could yield several benefits, like a better interest rate, better terms, and a better interest structure. The requirements to refinance your jumbo loan may be stricter than refinancing a conforming loan. Work with a lender to understand when and how you can refinance your jumbo loan.
When you’re ready to take the next step, consider what SoFi Home Loans have to offer. Jumbo loans are offered with competitive interest rates, no private mortgage insurance, and down payments as low as 10%.
FAQ
Can I refinance my jumbo mortgage loan with my current lender?
It may be possible to refinance your jumbo mortgage loan with your current lender. But refinancing is also a time to shop around and consider the terms other lenders have to offer. With any jumbo loan refinance, you’ll need to meet certain requirements; this might include a minimum credit score or DTI.
What are the risks associated with refinancing a jumbo mortgage loan?
Refinancing a jumbo mortgage will involve significant closing costs. Your credit score will also likely drop when you refinance because of the hard inquiry. And if it’s a cash-out refinance, you’ll lose some of the equity you’ve built in your home.
How often can I refinance my jumbo mortgage loan?
While there’s technically no limit to how often you can refinance a mortgage loan, you likely won’t want to do it too often. You’ll pay closing costs every time you refinance, and your credit score can take a hit each time.
Can I still refinance my jumbo mortgage loan if I’m self-employed?
It’s possible to refinance a jumbo mortgage loan if you’re self-employed. You may just have to jump through additional hoops to prove your income. That can mean providing a profit-and-loss and balance statement, tax returns or 1099s from recent years, and business bank statements.
Can I refinance my jumbo mortgage loan if I have an adjustable-rate loan?
Yes, you can refinance your jumbo mortgage if you have an adjustable-rate loan. One of the many reasons people consider refinancing a jumbo loan is to switch from an adjustable- to a fixed-rate mortgage.
What should I do if I’m having trouble making payments on my jumbo mortgage loan?
If you’re having trouble making payments on your jumbo mortgage loan, you may be able to refinance to get a better interest rate/and or lengthen the loan term. Both options could lower your monthly payment. However, if you’ve already missed one or more payments, getting approved for a jumbo refinance could be challenging.
How do I know if refinancing my jumbo mortgage loan is the right decision for me?
To determine if refinancing a jumbo mortgage loan is right for you, consider your current finances and long-term goals. If refinancing means your monthly payments will be more manageable, you’ll save money in the long term, or you’ll be able to leverage your equity to fund a home renovation or pay down high-interest debt, it may be a good strategy for you.
Photo credit: iStock/FG Trade
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