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As you have experienced, borrower mortgage qualification requirements for jumbo loans are stricter than for non-jumbo loans and have becoming more challenging over the past six months. For borrowers to receive the best mortgage terms, lenders typically require a higher credit score (above 720) and apply a lower loan-to-value (LTV) ratio (75% or below). For borrowers with credit scores lower than 720, the maximum LTV ratio may be 70% or lower. Additionally, the maximum LTV ratio for a cash-out jumbo refinance is also usually lower. Please note that if you use proceeds from a jumbo refinance to pay-off a second mortgage many lenders consider that a cash-out refinance even though you do not receive any money from the loan. Also, most jumbo lenders require that borrowers have six-to-nine months of total monthly housing expense as savings in reserve after the loan closes. On a positive note, most lenders use a similar maximum borrower debt-to-income ratio for both jumbo and non-jumbo loans -- usually 43% -- so it is somewhat unusual that the lender you spoke with used a 35% debt-to-income ratio.
The challenges you specifically face in attempting to refinance your jumbo loan are likely due to your credit score being lower than 720, your LTV ratio being above 70% - 75% and most lenders classifying the loan as a cash-out refinance because you are paying off a second mortgage. The reserve requirement may also present a challenge, depending on how much money you have in savings.
Based on the information you provided, we recommend that you take the following steps. First, contact multiple lenders to understand how they would handle your unique situation. Although jumbo loan qualification guidelines are relatively strict, they also vary across different lenders. It is in your interest to contact several lenders as one may say no while another says yes. Review lenders in your area by clicking INTEREST RATES and you should also contact a local mortgage broker and credit union to understand your options. We advise you to contact at least four lenders to understand what is feasible given your financial profile.
Second, consider refinancing only your first mortgage and not both your first and second mortgage. Depending on where you live, the outstanding loan balance on your first mortgage may be lower than the conforming loan limit in your county. You can use our conforming loan limit calculator to determine the conforming loan limit for your county. If your mortgage balance is below the loan limit it should be significantly easier for you to qualify for a mortgage with a conforming loan amount. The one issue with this approach is that your current second mortgage lender is required to subordinate their loan to your new first mortgage. Some but not all second mortgage lenders will agree do this.
Finally, if steps one and two above do not yield the outcome you want, we recommend that you start paying-down your debt with the highest interest rate. It sounds like you do not have a lot of extra money but paying down even a small amount of debt can be helpful. Although it may take time, paying down your debt should improve your credit score and debt-to-income ratio and boost your ability to qualify for your refinance.