Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Refinancing a jumbo loan
If you have strong financials and plenty of cash, you could save thousands with a refinance.
With a jumbo loan, you’re borrowing more money than the average borrower. To compensate for that risk, lenders impose a strict set of requirements on refinances. But if you can meet them, you could cut down your payments by thousands per year and unlock the equity in your home.
How to refinance a jumbo loan
Refinancing a jumbo loan involves a lot of paperwork. To maximize your savings and streamline the process, follow these steps:
1. Make sure you meet the criteria
Among other requirements, you’ll need a credit score of 660+, a debt-to-income ratio of 43% and at least 20% equity in your home. If you can’t meet all the requirements, focus on improving areas that can get you over the line.
2. Compare mortgage rates
Look for a loan with a stronger rate or shorter term. Ask questions about rates and fees, then choose a competitive lender that suits your needs.
3. Do the math
Before applying, weigh the costs of your potential new loan against your current mortgage to decide whether refinancing makes financial sense.
4. Apply for a new loan
Review the loan estimate form from your lender, which includes the loan offer and the list of fees. Start filling out the loan application.
5. Submit supporting documents
Prepare the paperwork, including pay stubs, bank statements and tax returns. Know that you may need to supply your lender with letters of explanation (LOE) clarifying anything from your employment history to bank transactions.
6. Sign the dotted line
Review, sign and return the closing disclosure form to your lender. After that, you’ll need to sign your loan documents either electronically or at the title company or closing attorney’s office.
7. Close on the loan
The lender pays off your existing home loan and registers your new one with the county.
Pros and cons of a jumbo loan refinance
There are many benefits of refinancing a jumbo loan, but also several drawbacks.
- Lower interest rates. If your current rate is higher than the market rate, refinancing could save you thousands per year in interest and free up more of your money.
- Switch to a more stable loan type. If you have an adjustable-rate mortgage (ARM), you might consider refinancing to a fixed-rate before your interest rate adjusts.
- Extract home equity. If you need cash to consolidate debts or cover a large expense, like college tuition or a home renovation, you could consider a cash-out refinance. But this could drive down your equity and possibly your property’s value if the market changes.
- Multiple-mortgage limits. Having four or more mortgaged properties may make you ineligible for a jumbo loan refinance.
- High reserve requirements. You may need to prove that you can cover the loan’s principal, interest, taxes and insurance from six to 12 months. So if the monthly payment is $8,000, your reserve requirement for 12 months is $96,000. Your retirement savings may only count as part of your cash reserves.
- Longer wait time after bankruptcy. With a conforming mortgage, you can typically re-enter the mortgage market two years after bankruptcy. A jumbo loan has stricter standards with a seven-year wait unless you’re willing to pay a hefty interest rate.
Jumbo loan refinance eligibility
Jumbo loans have strict eligibility requirements, and lenders often add their own overlays. To qualify for a refinance, you’ll have to show you’re in excellent financial standing.
You can increase your chances of approval with the following:
- A FICO score of 680, or 700 if you have less than 20% home equity
- A loan-to-value (LTV) ratio of 80%, or at least 20% equity in your home
- A maximum debt-to-income (DTI) ratio of 36%
- No more than four mortgaged properties
- No bankruptcies in the last seven years
- Proof of six to 12 months’ worth of cash reserves, such as bank accounts, investments and other liquid assets
- Sufficient income to make your monthly payments
- An explanation for any large sums recently deposited into bank accounts
How a jumbo loan refinance compares to other types of refinances
Jumbo loan refinances have higher loan amounts than other refinances, but similar interest rates and fees.
- Interest rates. The rate on a jumbo loan doesn’t vary too much from conforming loan rates. For example, according to the Mortgage Bankers Association, in March 2020, the average rate for a 30-year fixed-rate jumbo loan was 3.58%, while the 30-year conforming rate was 3.47%.
- Fees. Refinancing costs for jumbo loans are similar to other loan types. But since fees are generally a percentage of the loan amount, you may end up paying more for a jumbo loan refinance.
- Loan limit. Jumbo loans do not conform to the national loan limit, which is $510,400 for single-family homes in most counties nationwide. Government agencies like Fannie Mae and Freddie Mac won’t back jumbo loans, making them riskier for lenders.
Compare mortgage lenders and brokersCompare these lenders and lender marketplaces by the type of home loan you're searching for, state availability and minimum credit score (for a conventional loan). Select See rates to provide the company with basic property and financial details for personalized rates.
If you want to refinance a jumbo loan, be prepared for a mountain of paperwork. It can be worth it, though; refinancing to a lower rate or shorter term can save you thousands in interest annually and allow you to tap into your home’s equity.
Before committing, compare mortgage lenders to make sure you’re getting the best possible rate.
More guides on Finder
Small business loan interest rates are low — but will it last?
Business loan interest rates dropped in 2020 and are likely to stay low. Here’s why.
Third Federal Savings & Loan home equity review
Get a low rate guarantee, but you won’t know if you’re eligible until you apply.
PenFed Credit Union home equity review
Get a line of credit with low closing costs — but you can’t apply online.
How to start a photography business
From your marketing strategy to financing and insurance, we’ll walk you through how to start a career behind the lens.
BECU home equity review
Get fixed- and variable-rate options in a HELOC, if you qualify for membership.
Bank of the West home equity review
Offers reduced-rate, no-closing-cost HELOCs, but only in specific states.
AppleTree Credit Union home equity review
Get low rates with minimal fees — if you qualify for its limited membership.
Union Bank home equity review
Offers no annual fee, discounted HELOCs — but locations are limited.
RefiJet helps you save on your monthly car payment or interest with a few simple steps.
How to beat financial stress by controlling your finances
Take control of your money stress by learning to prioritise and plan your financial goals.
Ask an Expert