Updated: January 1, 2024
If you’re a homeowner in Florida with a high-value property, you might be sitting on a significant amount of equity. A jumbo cash out refinance can help you tap into this wealth, providing you with liquid cash for any purpose.
However, not all lenders are willing to refinance jumbo mortgages due to their inherent risk and size.
Therefore, mortgage lenders are more selective with jumbo applicants. Navigating the jumbo mortgage refinancing field requires expertise, so it’s beneficial to work with a mortgage broker familiar with the luxury home and jumbo lending market to find the best refinance for your situation.
What is a jumbo mortgage?
A jumbo mortgage, also known as a jumbo loan, is a type of mortgage that surpasses the maximum loan limit that Fannie Mae or Freddie Mac are willing to back. As of 2024, the maximum loan limit for conventional conforming mortgages is $766,550 in most areas.
In some higher-cost markets, the limit can go up to 150% of that amount, or $1,149,825. These limits are updated annually by the Federal Housing Finance Authority (FHFA).
Any loans, whether for a purchase or a refinance, that exceed these limits are considered jumbo loans.
Can you refinance a jumbo mortgage?
Yes, refinancing a jumbo mortgage is possible. However, it’s important to note that this process involves specific requirements and considerations that differ from refinancing a conventional conforming mortgage. The two main types of refinancing options for jumbo mortgages are rate-and-term and cashout refinance, each with its own benefits and considerations.
Rate-and-term refinancing involves adjusting the interest rate or the duration of your existing loan. This option is beneficial if you want to take advantage of lower interest rates or change your repayment term to suit your current financial situation.
A cashout refinance, on the other hand, allows you to convert a portion of your home equity into cash. This is particularly beneficial if you have accumulated substantial home equity and need cash for significant expenses such as home renovations or debt consolidation. However, it’s crucial to understand that this type of refinancing might increase your loan balance, and you should assess your financial situation and long-term goals before opting for it.
What is considered a jumbo cash out mortgage?
A jumbo cash out mortgage is a specific type of refinancing strategy. This option allows homeowners to tap into their home’s equity and convert it into cash, exceeding the conventional loan limits. It’s particularly beneficial for homeowners with high-value properties who have built up significant equity over time.
Just as with a purchase of a new home, if the loan amount of your refinance exceeds the conforming loan limits, it is considered a jumbo refinance. In all counties in Florida (except Monroe County), if you are seeking a refinance for a single-family residence or condominium unit for a loan amount of $766,551 or more, then you are seeking a jumbo refinance.
The cash obtained from a jumbo cash out mortgage can be used for various purposes, such as investing in home improvements, paying off high-interest debts, or funding major life events.
However, it’s crucial to understand the implications of this financial decision. For example, a jumbo cash out mortgage may increase your loan balance. Therefore, it’s essential to assess your financial situation and long-term goals before making the refinancing jumbo loan decision. Remember, while this strategy can provide immediate financial relief or opportunities, it’s a long-term commitment that should align with your financial goals.
Make sure to check out our comprehensive guide on a cash out refinance in Florida.
Do you have questions about refinancing a jumbo mortgage loan? Let’s explore if it’s the right fit for you.
When to use a jumbo cash out refinance
A jumbo cash out refinance can be a strategic financial move for homeowners with significant equity in their high-value homes. It’s an effective way to tap into this equity, converting it into cash for various purposes. However, it’s crucial to understand when it’s most advantageous to refinance a jumbo loan.
One of the best times to consider a jumbo cash out refinance is when you have substantial home equity and need a large amount of cash. This could be for major home renovations, funding a child’s education, or consolidating high-interest debts. By tapping into your home equity, you can access funds at a lower interest rate than most personal loans or credit cards.
There are many reasons for refinancing a jumbo mortgage loan. Examples include:
- Convert your equity to cash to buy more properties
- Make repairs or improvements
- Pay down high-interest debt
- Pay college expenses for children or grandchildren
- Diversify your investment portfolio
- Generate income so you can delay taking Social Security
However, it’s also important to consider the current mortgage rates. If rates are significantly lower than when you first obtained your jumbo loan, a cash out refinance could not only provide you with the cash you need but also reduce your monthly payments or overall interest paid.
Jumbo loan refinance requirements
Navigating the jumbo loan refinance requirements can be complex due to the high value of these loans. Lenders often have stricter criteria to ensure borrowers can handle the larger loan amount.
Let’s delve into some of these key requirements to qualify for a jumbo refi.
Credit score
A high credit score is one of the primary requirements for a jumbo loan refinance. Lenders view a borrower’s credit score as a measure of their reliability in repaying the loan. For jumbo loans, lenders want to see a credit score is typically higher than for conventional conforming loans.
Most lenders require a credit score of at least 680 for a jumbo loan refinance, but some may require even higher scores, especially for larger loan amounts or if you’re refinancing an investment property, as opposed to your primary residence.
It’s important to check your credit score and take steps to improve it if necessary before applying for a jumbo loan refinance.
Debt-to-income ratio
Your debt-to-income (DTI) ratio is another crucial factor in the jumbo loan refinance process. This ratio, expressed as a percentage, compares your monthly debt payments to your gross monthly income. Lenders use this ratio to assess your ability to manage your monthly payments.
For a jumbo loan refinance, lenders typically require a DTI ratio of no more than 43%. However, some lenders may allow higher ratios (e.g., 45% to 50%) with compensating factors, such as substantial cash reserves or a high credit score.
It’s essential to understand your DTI ratio and work on reducing your debt or increasing your income if necessary to meet this requirement.
Jumbo cash out refinance rates
The interest rates for a jumbo cash out refinance are another key consideration. These rates can significantly impact your monthly payments and the total cost of the loan.
Cash out refinance jumbo rates vary by lender and several factors, including your credit score, and the current market conditions. It’s important to shop around for the best jumbo rates from different lenders to ensure you’re getting the best deal. Keep in mind that while a lower rate can save you money, it’s also important to consider other factors such as the loan terms and any fees associated with the refinance.
Cash reserve requirements
Reserve requirements refer to the amount of money that lenders require borrowers to have in reserve after closing the loan. These funds, which should be enough to cover several months of mortgage payments, provide a safety net for the lender in case the borrower faces financial difficulties.
For a jumbo loan refinance, lenders typically require six to twelve months’ worth of reserves, depending on the loan amount. These reserves can be in the form of cash, retirement savings, or other liquid assets.
How will a cash out jumbo refinance affect your mortgage?
Refinancing a jumbo loan shares many similarities with regular refinances, allowing you to modify various aspects of your current jumbo mortgage. Let’s explore how this process can change your loan and its current terms.
Extend your loan term
By choosing to extend your loan term for the new mortgage, you essentially give yourself more time to repay your loan. This decision can lower your monthly payments, easing your immediate financial burden.
However, it’s important to remember that a longer loan term means you’ll pay more in interest over the life of your loan. This option can be beneficial if you need to free up some monthly income, but it’s crucial to consider the long-term implications.
Reduce your loan term
Alternatively, you might opt to reduce your loan term. While this decision often leads to higher monthly mortgage payments, it also means you’ll own your home sooner and pay less in interest over the life of the loan.
This can be a smart move if your income has increased since you first applied for your loan, and you can comfortably afford the higher payments.
Get a lower interest rate
If current mortgage rates are lower than when you first bought your home, refinancing at a lower rate can save you a significant amount of money. Even a small percentage difference can translate into thousands of dollars saved on a jumbo loan. Therefore, it’s often worthwhile to refinance if you can secure a lower rate.
Modify your interest structure
Refinancing also provides an opportunity to change your interest structure and change your loan type.
For instance, if you currently have an annual-rate mortgage (ARM) (also referred to as an adjustable-rate mortgage), you might want to switch from your ARM to a fixed-rate mortgage. Fixed-rate mortgages offer the advantage of consistent monthly payments, making your financial planning more predictable.
Conversely, you might want to switch from a fixed-rate mortgage to an ARM if you plan to pay off your home early or sell your property soon. An ARM can offer lower introductory rates, potentially saving you money in the short term.
Another option to consider when refinancing a jumbo loan is the possibility of switching from principal-and-interest payments to interest-only payments, or vice versa. This can be a strategic move depending on your financial goals and current situation.
Interest-only payments can be an attractive option if your primary goal is to improve your monthly cash flow. With this type of payment structure, your monthly mortgage payment is reduced because you’re only required to pay the interest on the loan, not the principal. This can free up a significant amount of cash each month, which can be particularly beneficial if you’re facing short-term financial constraints or if you prefer to invest that money elsewhere for potentially higher returns.
However, it’s important to note that with interest-only payments, you’re not reducing the principal balance of your loan. This means that the overall amount you owe doesn’t decrease, and you’ll need to be prepared to pay off the principal at the end of the loan term or if you decide to sell the property.
On the other hand, principal-and-interest payments ensure that you’re gradually reducing the principal balance of your loan over time. While these payments are higher because they include both the principal and interest, they can provide the benefit of building equity in your home and potentially paying off your mortgage sooner.
In the end, whether you choose interest-only or principal-and-interest payments depends on your financial circumstances, risk tolerance, and long-term goals.
Curious to see what your jumbo mortgage refi terms will be? We can help you visualize your new loan.
Refinance jumbo loan with cash out in Florida: pitfalls to be aware of
While refinancing your jumbo mortgage loan can offer significant benefits, it’s important to be aware of the potential complications that can arise. These challenges are often due to two main factors: higher closing costs and the manual underwriting process that jumbo loans typically undergo.
The impact of higher closing costs
When you refinance a jumbo loan, you can expect higher closing costs due to the larger principal balance. Typically, closing costs range from 2% to 6% of the loan amount.
For instance, if you’re refinancing a $1 million jumbo loan, you can expect to pay between $20,000 and $60,000 at the closing table in closing costs.
This amount can be paid in cash or rolled into your loan, increasing your principal balance and potentially your interest rate. It’s crucial to factor in these costs and make sure you have enough cash when considering a refinance jumbo loan with cash out in Florida.
Manual underwriting process
Unlike conventional conforming mortgages, jumbo loans often undergo a manual underwriting process. This may lengthen the amount of time it will take to approve your jumbo mortgage refinance.
Specifically, an individual underwriter (or sometimes, two) personally reviews your financial documents, such as asset statements and tax returns, instead of using automated underwriting software.
This thorough review can identify any potential red flags, such as serious negative items on your credit report or a lack of cash reserves. If such issues are found, you might need to increase your funds or wait for the negative item to expire from your credit report before applying for a refinance.
How DAK Mortgage can help with a cash out refinance jumbo loan
Not all lenders are willing to take on the risk associated with refinancing jumbo loans due to their high value. Some may even limit the amount they’re willing to refinance.
This is where DAK Mortgage steps in. Leveraging our extensive network of innovative lenders, we specialize in finding the lender willing to offer the best cash out refinance jumbo loan for you, effectively locating the proverbial needle in the haystack.
In addition to connecting you with the right lenders, DAK Mortgage also offers a variety of creative programs to streamline the jumbo loan refinancing process.
We also offer expert guidance on jumbo purchase loans, including how to minimize your jumbo loan down payment.
Leveraging cross-collateralization
Cross-collateralization is a strategy that allows you to use other properties you own as collateral for your new loan. This approach can enable you to qualify for up to a 100% loan-to-value ratio on purchase loans and up to 90% for refinancing. Whether it’s your primary residence, a second home, or an investment property, cross-collateralization can be a powerful tool to buy or refinance a different property.
This strategy can be particularly beneficial for homeowners with multiple properties, providing an avenue to leverage their existing real estate investments. However, it’s important to understand that cross-collateralization involves putting your properties at risk, and it’s crucial to assess your financial situation and risk tolerance before opting for this approach.
Utilizing pledged assets
Beyond real estate, other valuable assets like stocks, bonds, money markets, CDs, and even cryptocurrencies can be pledged as collateral. By borrowing against these assets, you can qualify for a larger mortgage without having to sell the assets and potentially incur a significant capital gains tax hit.
This strategy can be especially beneficial for individuals with significant investments in these types of assets. It allows you to leverage your investments to secure a larger mortgage, while avoiding the potential tax implications of selling your assets. However, as with any financial decision, it’s important to consider the potential risks and consult with a financial advisor if necessary.
Asset depletion programs
Asset depletion programs are designed for individuals with substantial assets but limited verifiable income. In this program, the lender calculates your potential monthly income by considering the amount you could generate by liquidating your assets over a certain period. You can include an unlimited amount of assets in an asset depletion program, including stocks, bonds, mutual funds, business funds, and even cryptocurrencies.
These programs can be an excellent solution for high-net-worth individuals who have struggled to meet the debt-to-income requirements of traditional lenders. By leveraging your assets, you can demonstrate your ability to repay the loan, even without a traditional income source.
We have the best jumbo loan lenders offering these creative lending solutions.
Want to learn more about our jumbo loan cashout refinance programs? We have access to the most creative jumbo loan products on the market.
Is a jumbo cash-out refinance for you?
A jumbo cash-out refinance can be the right choice if you have significant equity in your home and you’re in need of a significant amount of money to cover expenses such as bills or home repairs. This type of refinancing allows you to tap into the equity you’ve built up in your home, providing you with cash in exchange for a higher principal amount on your loan.
Consider a scenario where you have a home loan with a principal balance of $800,000, and you’re looking to pay off $50,000 in credit card debt. A cash-out refinance would allow you to take on a new loan with a principal balance of $850,000. In return, your lender would provide you with $50,000 in cash shortly after closing.
This strategy can be particularly beneficial if you have a substantial amount of high-interest debt and significant home equity. Given that mortgage interest rates are typically much lower than those for other types of debt, consolidating your debt into your home loan could potentially save you thousands of dollars.
However, it’s important to note that there are often limits on the amount of equity you can cash out, especially with high-value jumbo loans. Most lenders require that you retain 20% to 30% of your home’s equity after refinancing. This means that if you’re still early in your loan term, you might not qualify for a cash-out refinance.
Moreover, refinancing provides an opportunity to make multiple changes to your loan. For instance, if current interest rates are lower than when you first obtained your loan, you could potentially secure a lower rate. Additionally, if your income has increased, you might choose to shorten your loan term, allowing you to pay off your loan faster and save even more on interest. As with any financial decision, it’s crucial to consider your individual circumstances and long-term financial goals when deciding whether a jumbo cash-out refinance is right for you.
Jumbo loans refinance FAQ
What is the max cash-out refinance jumbo?
The maximum cash-out limit in a jumbo refinance is not fixed and varies depending on the lender and your financial situation. However, lenders typically mandate that borrowers retain 20% to 30% equity in their home after the refinance, which inherently limits the cash-out amount to you at the closing table.
In other words, if you want to refinance your jumbo loan and simultaneously take cash out, expect your maximum LTV to be 70 to 80%. While 90% LTV is possible for jumbo purchases and rate-and-term refinances (10% down jumbo loans), that high of an LTV is typically not available for jumbo cashout refinances. However, using creative programs such as cross-collateralization, it is possible to go up to 90% LTV.
Also, while there may be limits on the maximum LTV, some jumbo lenders have no limit on the cash in hand to you at the closing table.
Are closing costs different for jumbo cash-out mortgages?
Indeed, jumbo cash-out mortgages often come with higher closing costs due to the larger loan amount involved and the more complex underwriting process. When you opt for a jumbo refinance, you should be prepared to pay approximately between 2% and 6% of the total loan amount in closing costs.
What are super-jumbo loans?
Super-jumbo loans are a category of mortgages that far exceed the limits set for standard jumbo loans. While the limit for jumbo loans varies by location, super-jumbo loans are generally associated with mortgages over $3 million. These loans cater to high-value properties and come with stricter requirements.
Can I get a jumbo cash-out refinance even if I’m self-employed?
Yes, self-employed individuals are eligible for a jumbo cash-out refinance. Indeed, several lenders have relaxed guidelines for self-employed borrowers and do not require two years of tax returns. Instead, alternative documentation can be provided such as 12 to 24 months of bank statements or a profit-and-loss statement.
I have a lot of debt. Can I get a jumbo cash-out refinance?
Yes, a jumbo cash-out refinance can be a viable strategy for those with significant home equity and a large amount of high-interest debt. Lenders will evaluate factors such as your debt-to-income ratio, credit score, and overall financial health to ensure you can manage the larger loan.
