Britain’s vote to leave the European Union led to some financial shock waves around the globe. In the U.S., it’s had a positive impact on mortgage refinance rates, which have fallen to near-record lows. That means borrowers who took on over-sized loans have the potential to save some serious cash by refinancing. If you took on a jumbo loan, here’s how to get the best deal on a refinance.
Check out our refinance calculator.
1. Check Your Credit Score
Refinancing any mortgage loan involves a credit check. And when it comes to refinancing jumbo loans, lenders are even more interested in how solid someone’s credit rating is. That’s because there’s usually more money on the line.
Not only does your credit score affect whether you can refinance your jumbo loan but it also has an impact on the kind of interest rates you qualify for. It’s best to work on pushing your FICO score past the 700-mark if you want access to the most favorable terms.
2. Decide Whether You’ll Cash Out
With home values on the rise, many jumbo loan holders are using a refinance as an opportunity to tap into some of the equity they’ve built. If you need extra money to finance a home renovation or consolidate debt, you can try to get extra cash through a cash-out refinance.
Even if you’re not planning to do a cash-out refinance, it’s a good idea to know how much equity you have. If you have a large amount of home equity, it’ll be easier to convince your lender to let you refinance your jumbo loan. As a general rule, it’s best to have at least 20% equity in your home before you start approaching banks about a new loan.
Get your free credit score now.
3. Calculate How Much You Could Save
If you want to refinance in order to save money, it helps to know how much you stand to gain versus what you have to put toward closing costs. Comparing your current interest rate and payment amount to the rate you expect to get by refinancing can give you an idea of whether it’s even worth pursuing.
Don’t forget to think about the break-even period, or the point at which you earn back the costs of refinancing through your interest savings. If you have a jumbo loan, even a fraction of a difference in your interest rate can have a significant impact on your long-term savings.
4. Get Organized
Underwriting rules for jumbo loans have become more stringent since the housing collapse. That means you’ll need to have all your paperwork in order if you want a shot at refinancing your mortgage. That’s why it’s a good idea to take some time to collect your pay stubs for the past two to three months, your tax returns from the past two years and your bank statements from the past six months.
If you’re self-employed, be prepared to provide a copy of a profit and loss statement, along with references to verify your employment status if you’re working as an independent contractor.
Related Article: What Is a Jumbo Loan?
5. Shop Around
Before you refinance any loan, it’s important to compare rates from different lenders. That way you’ll have an idea of what you’ll qualify for. Shopping around might also give you an opportunity to negotiate terms if you find a lender you want to work with.
Aside from haggling your way to a better rate, it’s a good idea to try and score a deal on your closing costs since they can add thousands of dollars to the cost of your refinance.
Photo credit: ©iStock.com/pichet_w, ©iStock.com/SebastianGauert, ©iStock.com/Eva Katalin Kondoros