Although lenders have more flexibility in setting the qualification requirements for a jumbo mortgage refinance, they tend to be stricter than for a conforming mortgage. Below we outline some of the key factors that lenders review when you apply for jumbo refinance.
Credit Score. Most jumbo mortgage lenders require a minimum credit score of 680 to qualify for the loan and a score of 720 to receive the best mortgage terms, including the lowest interest rate and fees. Lenders may permit lower credit scores for applicants with more homeowners equity, a lower debt-to-income ratio or significant financial assets.
Loan-to-Value (LTV) Ratio. The maximum LTV ratio for a jumbo mortgage typically ranges from 70% to 90%. Lenders usually apply a lower LTV ratio (~75%) for jumbo refinances as compared to purchase loans and an even lower ratio (~70%) for cash out refinances.
Please note that the LTV ratio used by the lender may vary depending on your loan amount with lenders applying lower ratios to mortgages above $1 million. Additionally, lenders may also apply a lower ratio to applicants with lower credit scores. The lower the LTV ratio, the more equity you are required to have to qualify for the refinance.
Debt-to-Income Ratio. This is one qualification guideline that is similar for both jumbo and conforming loans. The debt-to-income ratio limit for a jumbo mortgage refinance is usually 43% to 50%, which means you can spend 43% to 50% of your monthly gross income on total monthly housing expense plus your other personal debt payments.
In some cases lenders may use a lower debt-to-income ratio for borrowers with lower credit scores. The lower the debt-to-income ratio used by the lender, the lower the mortgage amount you can afford.
Financial Reserves. To qualify for a jumbo mortgage refinance, lenders typically require that you hold six-to-nine months of total monthly housing expense, including your mortgage payment, property tax and homeowners insurance, as savings in reserve when your loan closes.
For example, if your total monthly housing expense is $7,000 and the reserve requirement is six months, you are required to have at least $42,000 in savings at closing. Given the potentially significant financial commitment required, you should be sure to understand the lender’s reserve requirement before you apply for the mortgage.
It is important to highlight that although it is generally more challenging to qualify for a jumbo mortgage than a conforming loan, lenders have more discretion in how they apply qualification requirements. For example, lenders may be more flexible on one of the requirements if your application is strong in other areas, especially if you have steady income or sizeable financial resources.
Additionally, jumbo refinance qualification guidelines tend to vary more across different lenders. So if one lender declines your application, do not give up. Another lender may apply different guidelines and approve your mortgage.
The table below shows jumbo mortgage refinance rates and fees for leading lenders in your area. Given the potential variation in jumbo lender qualification requirements and loan pricing, we recommend that you contact multiple lenders to find the best mortgage terms.
Understand how a jumbo mortgage works and review the differences between jumbo and conforming loans