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You’ve owned your home for a while, made timely payments on your jumbo mortgage and built up some equity. Now, you’d like to find a way to lower your interest rate or save money on your monthly mortgage payments.
Refinancing your jumbo loan could help you do that, but new rules have made it tougher to find a good deal and to qualify. (Mortgages classified as jumbo loans can vary from a minimum of $417,000 to a minimum of $625,500, depending on whether a home is located in a high-cost county.)
Here is what you need to know:
Should You Refinance?
Before you start looking for a new loan, you need to know if refinancing fits into your life plan. If you are considering selling your home in the next few years, refinancing may not make sense.
“Always look at whether the breakeven point for the savings versus the costs [is] longer than you will stay in a home,” said Jeremy David Schachter, mortgage adviser and branch manager for Pinnacle Capital Mortgage Corporation.
You will pay fees to refinance and it may take several months before you recoup those costs from the savings in your lower monthly mortgage payments.
“Loan amounts on jumbos are bigger than conventional loans, so a reduction in rate of 0.75-1.00 minimum would save a significant amount of money,” Schachter said.
Finding a Jumbo Loan
If you have had your jumbo loan for years, you may find refinancing tougher than you expected. As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, most mortgages issued are now qualified mortgages. These mortgages follow stricter guidelines set by the Consumer Financial Protection Bureau. Under these guidelines common jumbo loans, such as loans with large balloon payments and interest-free-period loans do not qualify for QM status.
While not all jumbo loans must be QM qualified, finding a non-QM loan may be difficult. However, “There is more of an appetite now for jumbo loans,” and lenders are still refinancing these products, Schachter said.
Qualifying for Refinancing
The underwriting process for refinancing jumbo loans has gotten tougher, due in part to rules set by the CFPB. Even if you were able to secure a jumbo loan with limited paperwork in the past, you may find refinancing more difficult now.
How you have managed bills in the past will have a big impact. “Credit score requirements are much higher than conventional or FHA loans,” and you will need more documentation to qualify, Schachter said.
That documentation includes:
- Pay stubs for a minimum of 30 days.
- Tax returns from the past two to three years.
- Bank statements showing mortgage payment reserves for a minimum of six months.
If you are self-employed, you will likely face additional paperwork and approval challenges. “Many lenders and investors are requiring 2013 taxes to be completed, even with an extension,” Schacter said.
To help the process go smoothly, check your credit reports at least six months before you apply for refinancing. If your credit is in good shape, start getting your documentation together. And if you aren’t sure where to find a good refinancing deal, ask for recommendations.
“If you don’t know a good lender or broker,” Schacter said, “ask a friend, family member or REALTOR®.”
