You’ve found your dream home, you’ve looked at the price, and you realize it’s a little higher than the market average. Can you still afford it?
Yes, you can, with the help of a jumbo loan.
Jumbo mortgage loans are mortgages that have larger maximum amounts compared to conventional mortgages. In return, they usually are a little harder to qualify for and come with higher interest rates.
If you already are familiar with this type of loan and are now looking to the possibility of refinancing, there are a couple of important things to know before you start the process.
Wanting a luxurious house, or to live in high-value property location isn’t out of reach, but if you can save some money at the same time, that’s even better. Here at TJC Mortgage, we believe it all starts with a home loan. It makes the most sense to understand the basics of a jumbo mortgage first, and then see if refinancing is a good idea.
What is a jumbo mortgage?
The term jumbo mortgage refers to a mortgage product with higher loan limits than Fannie Mae and Freddie Mac governed loans allow. With conforming loans, the limit is set at $417,000 for all US states except Hawaii and Alaska, which are considered high-cost areas.
Sometimes this just isn’t enough to buy the house you want. That is where a jumbo mortgage comes in, which allows you to borrow more money. You can use jumbo loans to buy primary residences, investment properties, and vacation homes on a fixed or adjustable rate basis.
Jumbo mortgages are not hard to get if your debt-to- income ratio is low, your credit score is above 700, and if you are willing to put a down payment of 20%, or more of the total loan value. If you don’t meet all these requirements, you may still be eligible, but it is best to talk to a local mortgage lender so they can review your situation and get you a quote quickly.
Advantages and disadvantages of jumbo home mortgages
- Provides access to a large amount of funds that exceed conforming loan limits. The funds can help you buy luxury and high valued properties.
- Offers the convenience of managing a single loan, instead of multiple loans, for large fund amounts.
- Lets you choose between various rate programs, like fixed or adjustable rate, depending on what’s best for you.
- Banks usually charge an interest rate of 0.5-1.5% higher than traditional loans because of the higher risks involved.
- Has a slightly more complex approval process. You will need to show that you will be able to make the loan payments with proof of income.
- Usually requires a higher jumbo mortgage down payment if your credit score is less than 600.
Are jumbo loans risky?
Jumbo loans are considered risky to lenders because of their large loan amount, and because they are not backed by the government. This explains the higher interest rates that usually come with them.
At least that used to be the case.
Recently, the housing market has seen a drop in the difference between jumbo and traditional loan rates. This change makes these loans more affordable and accessible to people who are looking for luxury homes, or looking to refinance their original jumbo loan.
Is it time for you to consider refinancing?
What is jumbo refinance?
Jumbo refinance loans help you lower the payment, or shorten the term, of your luxury home loan. Essentially you are taking out a new loan, to cover your existing one, with better terms and rates. In most cases, you can refinance with as little as 10% down payment equity without paying any PMI.
Talk to your existing lender, or find a new mortgage broker, who will refinance your loan with lower mortgage rates. This will lower your monthly payments and save you a sizeable amount of cash yearly.
Just like with your original mortgage, jumbo refinance loans come with stricter qualifying guidelines, when compared to conforming loan guidelines, but the money you save will be worth the effort.
Like jumbo mortgages, you should have a good credit score, a low debt-to- income ratio, and enough money reserved to qualify. You may also have to provide proof of your total monthly expenses, total monthly income, employment history, payment history, and other assets to determine what interest rates you’re eligible for.
Who refinances jumbo loans?
If you have been making your mortgage payments on time, have a good credit score, and have managed to build some home equity, now may be the time to refinance your jumbo loan.
Refinancing gives you the option to lower your interest rates, to reset an existing adjustable rate mortgage, or to get some cash out of your home equity. You can use this cash to pay off debt, make some home renovations, or for whatever you like. The best jumbo refinance rates on the market could reduce your current interest rate by 0.75% or more. Even if it’s just a small reduction, because of the size of your loan, this could translate into a lot of savings for you.
Who shouldn’t refinance?
While the benefits are obvious, it is important to realize this is not a good option for some situations.
If you’re planning to sell your home in the next few years, the cost of refinancing may outweigh the savings. Use a jumbo loan refinance calculator to find out if you will save more money than you will spend refinancing your jumbo loan.
How to refinance jumbo loan
Start by checking your credit score about six months before you begin the refinancing process. Having a history of on-time payments, low debt to income ratio and a steady credit history can have a huge impact on getting your new loan approved.
You also have to provide some additional documents to qualify for the loan. These include pay stubs, tax returns for past 2-3 years, and bank statements proving you have sufficient money to pay your mortgage payments for the next 6 months. If you are self-employed, you might have to provide some additional paperwork and approval challenges.
The less risky you are to the lender, the better rates you’ll get, and the more money you’ll save. Let us help you review your situation and explore your options for saving money together. Give us a call today.
Disclosure: Even though a lower interest rate can have a profound effect on monthly payments and potentially save you thousands of dollars per year, the results of such refinancing may result in higher total finance charges over the life of the loan.