How to Refinance a Jumbo Loan

Refinancing a jumbo loan — which is a mortgage for a loan amount above $726,200 for a single-family home in most parts of the country in 2023 — is similar to the process of getting one to buy a home. You potentially have all the same options of a regular refinance — to take cash out, change your loan term and change your rate — but you’ll need to qualify with a strong financial profile.

1. Determine your jumbo refinance type

The conforming limits are the benchmark for what defines a “jumbo” loan amount, and typically change every year.  If you’ve paid down your mortgage, the higher limits may keep you out of the jumbo refinance world this year, which may make for an easier approval process than jumbo loans require.

Whether your refinance needs to be jumbo or not, here are refinance options:

• Get cash out. Convert home equity to cash by borrowing more than you owe with a jumbo cash-out refinance. The extra funds can be used to pay off debt or make large purchases that would cost more to finance via other means. Here’s a cash-out calculator.
• Lengthen your loan. If your monthly budget needs some wiggle room, you could refinance your jumbo mortgage, which may have 20 years left, to a 30-year mortgage, which will likely lower your payments.
• Shorten your loan. If you can afford a higher payment, you could save thousands in interest by switching to a shorter-term, such as a 15-year fixed-rate jumbo loan.
• Get a better interest rate. If your credit score has improved, you’ve paid down some debt or your savings and income have increased, you may qualify for a better APR. Note that as of publication, interest rates are rising. You can see today’s rates here.
• Switch to flexible interest. Jumbo adjustable-rate mortgages (ARMs) typically feature a lower rate for a set time, such as three, five or seven years, and then adjust based on the terms. They can be a good choice if you plan to sell your home before the teaser rate period expires.
• Have interest-only payments. You could pay only the interest charges each month for a set time, which makes your monthly payment significantly lower. They may be a good choice for temporary savings, as long as you have the resources to make the full payment once the interest-only period ends.

2. Check your finances

Jumbo refinance guidelines vary by lender but are much stricter than “normal” conforming loan refinance requirements. Jumbo refinance requirements include:

• You retain at least 20% equity in your home
• You have a minimum credit score of 680 to 700
• Your debt-to-income (DTI) ratio doesn’t exceed 45%
• You have mortgage cash reserves equal to at least six monthly mortgage payments
• No major credit problems in your recent past, such as bankruptcies or foreclosures

If you don’t meet these requirements: Not all is lost. There are non-qualified mortgages (non-QM), which have more flexible requirements but typically cost more. You could also wait and work to improve your credit score and financial strength.

3. Rate shop and lock

Look at what lenders offer. Compare loan jumbo mortgage rates with at least three to five lenders to ensure you’re getting the best deal and lock in the lowest rate offer you receive.

You may need to shop around at several lenders as not all lenders offer the same jumbo mortgage programs and rates.  Be sure to ask the loan officer you speak with about their rate-lock option for jumbo loans — some lenders require a loan approval before locking in a jumbo loan amount.

4. Provide paperwork promptly

Jumbo loans typically require more paperwork and take longer to close than standard loans because a human loan underwriter, rather than an automated algorithm, is responsible for ensuring the loan meets investor standards.

To advance the process, respond to any lender requests quickly. It can be good to have some things on hand and ready, such as full documentation of all sources of income including tax returns, pay stubs, CPA letters and IRS validation of all filed tax forms.

Have funds ready to go as well. Refinance closing costs can be 2% to 6% of the loan amount.

5. Review your jumbo refinance closing disclosure

All mortgage refinances provide a closing disclosure three business days before your closing. Review the document and, if everything is correct, sign on the dotted line. Your old jumbo loan will be paid off and your new jumbo loan will start.