Refinancing a Jumbo Mortgage Loan. How you can Take Advantage of It

The term “jumbo loan” refers to a high-value loan used to acquire a home that exceeds the conforming loan restrictions set by Fannie Mae and Freddie Mac. Refinancing a jumbo mortgage loan is possible. However, you should provide additional documentation and conform to the prescribed standards to qualify. These standards are always higher than the criteria for taking out a typical mortgage loan.

This article takes you through the steps for getting your jumbo loan refinanced. We also review the top benefits you stand to reap from refinancing a jumbo mortgage loan, including a few examples demonstrating how a jumbo mortgage loan could change.

The Jumbo Refinancing Process

As a jumbo mortgage holder, you’re undoubtedly already aware of how stringent the criteria can be. Most lenders will require you to present additional evidence and have a stronger financial standing than you would be required to offer for a standard mortgage. The requirements for refinancing a jumbo loan are similar. When considering a borrower, lenders look for a strong credit score, cash on hand, and a recommended ratio of debt-to-income (DTI).

• Credit report: Lenders want to know that you’re responsible for your finances — and your credit score is the best way to tell. Lousy credit can throw a wrench in plans to buy a home, apply for a loan, or get approved for a credit card. It can also indicate someone with financial problems overall — which is why lenders look into credit scores before approving loans or issuing credit cards.
• Debt-to-income ratio: The DTI ratio is a metric that shows how much of your gross income is going toward your debt payments. Lenders can also calculate this number to show how much of your total income is spent on paying down your debts. The higher the number, the more likely you are to default on a loan because you may not have enough reserves to cover payments.
• Cash reserves: Lenders want to know whether you have access to sufficient funds that can settle your mortgage payments in the case of unforeseen circumstances. Often, they’ll ask for proof that you have cash savings set aside.

The Necessary Legal Papers for a Refinancing Application 

When you submit your application for refinancing a jumbo mortgage loan, the lender will require your assets and income documentation. To begin the refinancing procedure, you’ll most likely need the following paperwork:

• Yearly tax returns from the previous two years, with W-2 forms
• Paystub or other proof of income from the latest pay period
• Bank statements from the previous 60 days
• Self-employed creditors’ profit/loss plus balance sheet
• Any additional sources of revenue, such as commissions, incentives, and other deposits

Why Refinance a Jumbo Mortgage Loan?

Due to rising property values and thus increasing home equity, most homeowners consider refinancing their jumbo loan to obtain cash. Those with adjustable-rate jumbo mortgages could also be interested in refinancing their loans. Of course, lowering a monthly payment and the interest rate are also good reasons to refinance.

For those considering refinancing their jumbo loans, the first step is to calculate the statistics and determine whether or not it is worthwhile to proceed with the refinance.

Are Jumbo Refinance Rates and Fees Different?

In general, jumbo refinance rates are not significantly different from conforming loan rates. Your loan-to-value ratio and credit score are essential factors in deciding the interest rate you are offered. It is beneficial to shop around for the best interest rate from various lenders: The cost of a Jumbo loan can be significantly impacted by a fraction of a basis point.

Fees and closing charges for jumbo loans are identical to those for other types of mortgages. However, many costs are on the basis of a percentage of the total loan amount, you may find yourself spending more for a jumbo loan refinance than you originally planned. Furthermore, lenders may need two appraisals — particularly on mortgages exceeding $1 million — thereby increasing the cost of the appraisal price.

3 Biggest Obstacles Caused by Refinancing a Jumbo Mortgage Loan

The process involved in refinancing a jumbo mortgage loan, whether you’re doing so to lower your interest rate, lengthen the loan, or free up some cash flow, is time-consuming and complex. Before you decide to refinance, examine the advantages and disadvantages.

Advantages of Jumbo Mortgage Loan Refinancing 

• Higher mortgage financing: Jumbo loans are not subject to the limits set by the FHFA.
• Single payments: Instead of taking out multiple loans, you can take out one mortgage for a single regular payment.
• Better interest rates: When you refinance, you can acquire a better interest rate based on the prevailing market conditions
• Financial liquidity: By refinancing, you can generate more cash flow.
• Lengthen or shorten term: You have the option of extending your loan term. Reducing the period may allow you to save money on interest, while extending the duration may allow you to lower your monthly payments.

Disadvantages of Jumbo Mortgage Loan Refinancing

• Interest rates could rise: Interest rates on jumbo loans can vary widely, even by a small margin. When refinancing your loan, look around for the cheapest interest rate.
• Complex process: Jumbo loans carry more risks for lenders, which increases the length of time it takes to complete the refinance process. That also implies that the standards may be more stringent than those for conforming mortgages. Lenders typically look for solid credit scores, low debt-to-income ratios, and substantial cash reserves.
• Cash-out refinancing is subject to certain restrictions: There are restrictions on the sum of money that you can borrow through jumbo refinancing. Because the regulations differ from lender to lender, it is essential to obtain many quotes to make an accurate comparison.