Jumbo mortgage loans are a type of financing that exceeds Federal Housing Finance Agency (FHFA) limits. They are designed to finance properties that cost more than $550,000, albeit with several requirements and tax implications.
If you’re a few years into your jumbo loan and you’re thinking of refinancing, you need to brace yourself for the many requirements and the comparatively complex process you’re about to go through. Fortunately, all the effort can be well worth it for a slight drop in your mortgage rate.
Reasons to Refinance a Jumbo Loan
Properties are a rare investment that appreciates over time. Several years after purchase, the value of your luxury home has likely risen significantly. Refinancing is one of the best ways to cash out this new wealth.
Refinancing a loan means paying it off and replacing it with a new loan under new terms. If you want a lower interest rate or shorten the term of your mortgage, one of the best solutions is to refinance. Additionally, you can switch to an adjustable-rate or fixed-rate mortgage, for better financial prospects.
A cash-out refinance will replace your existing mortgage with a new one worth more than the principal you owe. If you get approved for a refinance, you can keep the amount difference in cash.
Jumbo Loan Refinance Requirements
No matter the reason, refinancing can be a good choice for many homeowners. One of the first steps you should take is to crunch some numbers to determine what new rates will be worth the effort and the expense. Mortgage lenders charge 3% to 6% of the principal for refinancing loans, and there are many financial and document requirements to file with your application.
If you’re thinking of refinancing your jumbo loan, here is what mortgage lenders may require:
- Minimum 700 credit score
- Debt-to-income ratio below 43%
- Loan-to-value ratio below 80%
- Cash reserves to cover principal, interest, taxes, and insurance for one year
- No bankruptcies in the last 7 years
- No more than 4 mortgaged properties
Jumbo loans have a manual underwriting process, which means that instead of the underwriting software used for conventional loans, a live financial expert will look through all of your documentation to assess your eligibility. Required documents may include:
- 2 years of tax returns
- 2 years of W-2 forms
- 2 years of income documentation (bonuses and commissions)
- 30 days of pay stubs
- 60 days of bank statements
- Proof of insurance
Your credit score and loan-to-value ratio will determine what refinance rate you are offered. Make sure to shop around for the best rate possible; don’t settle for the first lender that gives you a seemingly favorable rate. The difference of a half percentage point can make a very big difference to the long-term cost of your refinanced loan.
You can talk to your current lender about refinancing or choose a new lender altogether. Either way, make sure to communicate your financial situation as clearly as you can, so you can complete your application as soon as possible.
If you want to refinance your jumbo loan, you’ll have to jump through several hoops to qualify. This means meeting higher standards and providing extra documentation that a financial expert will pore through. Once you are approved, you will immediately reap the financial benefits of your refinancing.
If you’re looking for the best mortgage brokers in Miami, Halpern & Associates is the best choice for you. We have over 20 years of experience in the mortgage industry, and we can make the purchase or refinance process simple. Contact us today, and we will find the right loan program for you.