Refinancing a jumbo mortgage: What to know
Refinancing a jumbo loan can potentially mean huge savings. Similar to a typical mortgage refinance, you can expect stricter requirements. Here’s what you need to know. (iStock)
It was a record year for the mortgage industry. Last year, lenders hit an all-time high in refinancing credit volume with $ 2.8 trillion in refinancing. Despite the recent slight hike in mortgage rates, now may still be a good time to refinance a home loan.
For homeowners with a jumbo loan – while the requirements for a mortgage refinance are similar – it can be more of a challenge. You need to prove to a lender that you are in a good position to get refinance.
You can explore your refinancing options by visiting Credible to compare lending rates and lenders in the mortgage industry.
WHAT DIFFERENT TYPES OF MORTGAGE LOANS ARE AVAILABLE?
What is a Jumbo Loan?
Fannie Mae and Freddie Mac, government-sponsored mortgage lenders, are legally limited to buying single-family mortgages with a starting balance below a certain amount called the Compliant Credit Limit. The compliant credit 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 backed by Fannie Mae, Freddie Mac, or the federal government, which means that the lender is not protected from loss should the borrower default on the loan. Because jumbo loans are larger than the average mortgage and carry higher risk, lenders have stricter requirements compared to traditional mortgage loans.
The requirements for refinancing a jumbo mortgage
If you are considering refinancing your jumbo loan to get lower loan rates, you must meet your lender’s minimum requirements. Here is what a typical lender might need to qualify for a Jumbo Loan Refinance:
- A FICO credit score of at least 660, 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 the title of your home for at least six months
- No bankruptcies in the past seven years
- Proof of cash reserves to prove that you have saved enough for at least several months to cover the loan amount, interest, taxes and insurance
15 OF THE BEST MORTGAGE REFINANCES FOR 2021
Here are the documents you will need to refinance a jumbo loan:
- Two years of tax return
- Two years of W2 forms
- Current pay slips
- Bank statements
If you are self-employed, you may need to provide an income statement and balance sheet. Do not forget about the closing costs, which can be anywhere from 2% to 5% of the total loan balance; However, the closing costs vary depending on the lender.
Interested in Mortgage Refinancing? Visit Credible to connect with a loan professional to have your mortgage questions answered.
Refinancing rates last year
In January 2020, the average mortgage rate on a 30 year fixed loan was around 3.7% annualized. The Federal Reserve has taken action in response to COVID-19 and cut interest rates to encourage home loan borrowing.
In the first week of January 2021, a 30-year fixed loan was at an all-time low of 2.65%. Since then, interest rates have fluctuated and began to rise in mid-February. However, prices have recently fallen again. The rates have stayed below 3% for the past three consecutive weeks.
Mortgage refinancing rates are still near 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 want to see your personalized mortgage rate, visit Credible to compare multiple lender rates without compromising your creditworthiness.
WHAT IS A GOOD INTEREST ON A HOME MORTGAGE?
A normal refinance vs. a jumbo loan refinance
Homeowners typically choose to refinance their home for the following loan options:
- Negotiate a loan with lower monthly payments or a lower interest rate
- Shorten the loan term
- Change your loan type from a variable rate mortgage to a fixed rate mortgage
- Cash out refinancing to pull home equity and do home repairs, renovations, or use for debt consolidation
While regular refinancing and jumbo loan refinancing have the same purpose and potential benefits, they have different requirements.
Your lender may require the following for a normal refinancing:
- A credit score of 620 or higher for conventional mortgages; However, some government programs have a minimum of only 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. The refinancing rates for jumbo loans also hardly differ from normal mortgage refinancing. Make sure to buy multiple mortgage options in order to get the best price. Even a slightly lower mortgage rate can make a big difference over the life of the jumbo loan.
You can visit an online marketplace like Credible to view refinance rates and get cash for debt consolidation.
Do you have a finance-related question but don’t know who to contact? Email the Credible Money Expert at firstname.lastname@example.org and your question could be answered by Credible in our Money Expert column.