Refinance a jumbo loan: what you need to know

Refinancing a jumbo loan could potentially mean big savings. While similar to a typical mortgage refinance, you can expect more stringent requirements. Here’s what you need to know. (iStock)

For the mortgage industry, it was a record year. Last year, lenders hit a record level of refinancing loan volumes at $ 2.8 trillion in refinancing. Despite the recent slight rise in mortgage rates, now may still be a great time to refinance a home loan.

For homeowners with a jumbo loan – although the requirements for mortgage refinancing are similar – this can be more difficult. You will need to prove to a lender that you are in a good position to refinance.

You can explore your refinancing options by visiting Credible to compare loan rates and lenders in the mortgage industry.

WHAT ARE THE DIFFERENT TYPES OF MORTGAGE LOANS AVAILABLE?

What is a jumbo loan?

Fannie Mae and Freddie Mac, federally backed residential mortgage companies, are limited by law to the purchase of single-family mortgages with origination balances below a certain amount, known as the limit compliant loan. The compliant loan limit for 2021 is $ 548,250 and up to $ 822,375 or more in some high cost areas. Anything over the compliant limit is called a jumbo loan.

Jumbo loans are not guaranteed by Fannie Mae, Freddie Mac, or the federal government, which means the lender is not protected against loss if the borrower defaults on the loan. Because jumbo loans are larger than the average mortgage and carry more risk, lenders have more stringent requirements compared to traditional mortgages.

The conditions for refinancing a jumbo mortgage

If you are considering refinancing your jumbo loan for lower loan rates, you must meet your lender’s minimum requirements. Here’s what a typical lender may need to qualify for a jumbo loan refinance:

  • A minimum FICO credit score of 660 but preferably 700 or higher
  • A maximum debt-to-income ratio (DTI) of 43%
  • A maximum loan-to-value ratio (LTV) of 80%
  • No more than four mortgage properties
  • Your name on your home title for at least six months
  • No bankruptcy in the past seven years
  • Proof of cash reserves to show you’ve saved enough to cover loan principal, interest, taxes, and insurance for at least several months

15 OF THE BEST MORTGAGE REFINANCING COMPANIES FOR 2021

Here are the documents you will need to provide for a jumbo loan refinance:

  • Two years of tax returns
  • Two years of W2 forms
  • Recent pay slips
  • Bank statements

If you are self-employed, you may need to provide an income statement and balance sheet. Don’t forget the closing costs which can represent between 2% and 5% of the total loan balance; however, closing costs vary depending on the lender.

Interested in mortgage refinancing? Visit Credible to connect with a loan expert and get your mortgage questions answered.

Refinancing rate in the last year

In January 2020, the average mortgage interest rate for a 30-year fixed loan had an annual percentage of about 3.7%. The Federal Reserve has taken action in response to COVID-19, cutting interest rates to encourage borrowing on home loans.

In the first week of January 2021, a 30-year fixed rate loan was at an all-time low of 2.65%. Since then, interest rates have fluctuated and started to rise in mid-February. However, rates have fallen further recently. Rates have remained below 3% for the past three consecutive weeks.

Mortgage refinancing rates are still close to their historic lows. Here’s a look at today’s mortgage rates:

  • 30-year fixed rate mortgage refinancing: 2.875%
  • 20-year fixed rate mortgage refinancing: 2.75%
  • 15-year fixed rate mortgage refinancing: 2.25%
  • 10-year fixed rate mortgage refinancing: 2.125%

If you would like to see your personalized mortgage interest rate, visit Credible to compare the rates of several lenders without affecting your credit score.

WHAT IS A GOOD INTEREST ON A HOME MORTGAGE?

Normal refinancing vs jumbo loan refinancing

Homeowners typically decide to refinance their home for the following loan options:

  • Negotiate a loan with lower monthly payments or a lower interest rate
  • Shorten the term of the loan
  • Change the loan type from a variable rate mortgage to a fixed rate mortgage
  • Cash refinancing to take home equity and do repairs, renovations or use it for debt consolidation

While a regular refinance and a jumbo loan refinance serve the same purpose and have the same potential benefits, they have different requirements.

Here’s what your lender may charge with regular refinancing:

  • A credit score of 620 or higher for conventional mortgages; however, some government programs have a minimum of 500
  • A DTI ratio of 43% or less
  • An LTV of 80% or less

Although they are similar, the requirements vary depending on the lender. Jumbo loan refinance rates also don’t vary much from normal mortgage refinances. Be sure to shop around for several mortgage options to get the best rate. Even a slightly lower mortgage rate can make a big difference over the life of the jumbo loan.

You can visit an online market like Credible to view refinance rates and get funds to use for debt consolidation.

Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.


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