If you have a large mortgage on your home, also known as a jumbo loan, you may want to consider refinancing to help you save money. At Addition Financial, we help homeowners at every level. Our members who have jumbo loans often come to us for advice.
With that in mind, we’ve put together this list of four tips to help you refinance a jumbo loan in 2023.
What is a Jumbo Loan?
A jumbo loan is a large mortgage used to buy a high-cost home. In most parts of the United States, jumbo loans start at $453,100. However, in some higher-cost areas, like California, a jumbo loan must be even larger – sometimes more than $625,500.
If you’re not sure whether your mortgage qualifies as a jumbo loan, you can find out by checking the conforming loan limits set by the Federal Housing Finance Agency, or FHFA. In most areas of the United States, any loan more than $453,100 is considered a jumbo loan.
Tip #1: Know the Requirements for Refinancing a Jumbo Loan
If you have a jumbo loan, there are some special things you need to know, including what the requirements are for refinancing and what you’ll need to apply for a second mortgage.
The basic requirements for qualifying for refinancing on a jumbo loan are:
- A FICO score of 680 or higher (more than 700 is ideal)
- A maximum debt-to-income ratio of 43%
- A loan-to-value ratio of no more than 80% (another way of looking at this is that you should have at least 20% equity in your property)
- No bankruptcies within the last seven years
- Ownership of no more than four mortgaged properties
- Proof of cash or other liquid reserves. Depending on the lender, you may need to prove you have several months – or up to a year – of cash on hand to cover your payments.
Because jumbo loans are so large, the requirements are stricter. You should pull copies of your credit reports and do whatever you can to get your score up. You’ll also need to calculate the ratios above before you start to make sure you can qualify.
Tip #2: Improve Your Credit Score
Once you know your credit score, you may want to take steps to improve it. While a score of 680 is typically the minimum requirement, you’ll be able to qualify for better rates and options if your score is at least 760.
As a reminder, your FICO score is based on the following criteria:
- Your payment history
- Your credit balance (both as a total and as a percentage of available credit)
- The age of your credit
- The kinds of credit you have (ideally a mix of revolving and installment credit)
- The number of inquiries on your account
The easiest factor to affect is your credit balance. Paying down your debt before you apply can help give your score a boost and improve your chances of approval.
Tip #3: Get Your Paperwork Ready
The next tip involves the paperwork you’ll need to refinance your jumbo loan. Getting your paperwork together ahead of time will help you streamline the process and improve your chances of being approved for refinancing. Here’s what you’ll need:
- Two years’ annual tax returns
- Two years’ W-2 forms
- One month (30 days) of pay stubs
- Two months (60 days) of bank statements
- Two years of documentation of bonuses and commissions (if you intend to use them to qualify)
- If you’re self-employed, you’ll need a profit and loss statement and a balance sheet
- Self-employed people should also be prepared to provide references as proof of employment
Of course, you’ll need to be prepared to explain any anomalies in the paperwork you submit. You should also be prepared for intense scrutiny of your bank account and be ready to document any unusual activity.
It’s a good idea to be proactive about your financial history and paperwork. Go through everything and look for potential problems. Then, do what you can to fix them or explain them before you move forward.
Tip #4: Respond Quickly to Questions and Stay in Touch with Your Underwriter
The final tip is to think of yourself as a partner in the approval process. The underwriter who’s working on your application may have questions for you. One of the best ways to expedite the underwriting and approval process is to respond quickly and thoroughly to any questions.
The good news is you have already been through this process when you first applied for your mortgage. Responding quickly will keep your application moving forward. It also shows the lender you’re working with that you take the process seriously.
The requirements to refinance a jumbo loan are stricter than for a small loan, but by following the four tips outlined here, you can expedite the process.
To learn about Addition Financial’s flexible mortgage and refinancing options, please click here.
Posted on Jun 25, 2018
Topics:
