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How Do You Refinance A Jumbo Loan In California?

White spanish style home in California ready for a jumbo loan refinance

A jumbo loan is a loan that exceeds the conforming loan limit set by Federal Housing Finance Agency (FHFA) and is not eligible for government-backed entities like Fannie Mae and Freddie Mac.

For most counties in 2022, the jumbo loan limit is $647K, whereas some high-cost areas can go up to $970K.

Jumbo mortgage loans tend to carry slightly lower interest rates as they have much more stringent qualification guidelines, making them inherently less risky.

That said, while refinancing a jumbo loan can help lower your monthly payment, it can also be a bit tricky to qualify for.

What is a No-Cost Jumbo Refinance?

A no-cost jumbo refinance means all non-recurring closing costs or one-time fees are covered by the lender. These include title, escrow, appraisal, credit report, notary, etc.

The lender does not cover recurring fees such as interest, property taxes, and homeowner’s insurance since the client would be paying these whether they are refinancing or not. This usually comes at a slightly higher interest rate as well.

Requirements to Refinance a Jumbo Loan

Before you begin your search to compare lenders, you will want to see if you can meet the requirements to refinance a jumbo loan in California.

Credit Scores

Jumbo loans have higher credit score requirements than any other traditional mortgage product. While the minimum mid-score is 680, some lenders may even require a score as high as 720.

Debt-to-Income Ratios

Your debt-to-income (DTI) ratio is a very important factor for jumbo loans.

Lenders will want to be sure that your projected monthly housing payment and your monthly liabilities do not exceed 36%-43% (depending on your lender) of your gross monthly income.

Reserve Requirements

Reserves allow your lender to see that in case anything were to happen with your income stream, you are still capable of paying your mortgage payment.

To elaborate a bit more, many jumbo investors require 12 months of reserves in your accounts after the down payment and closing costs have been accounted for (1 reserve = 1 monthly payment). Many lenders have additional requirements when using retirement accounts as well.

Benefits to Refinancing a Jumbo Loan

Refinancing a jumbo loan has essentially the same possible outcomes as a conventional mortgage.

Lower Your Interest Rate

If interest rates have dropped since the time you purchased your home, you can refinance for a lower rate. Even a quarter of a percent lower rate can save you thousands in the long run!

When deciding if a jumbo refinance is a good idea for you, it is important to think about how long you plan to stay in the home.

This will have a drastic effect on the amount of savings you plan to see.

View mortgage rates for March 27, 2023

Take Cash Out

If you have a few large bills to pay or are planning on some renovations for your home, a cash-out refinance might be right for you. For a cash-out refinance, you take on a higher principal balance and can use the difference however you want.

Many lenders will still require that you have at least 20-30% equity in your home after the refinance, making this option a bit more difficult if you recently purchased your home.

Change Your Loan Structure

If you currently have an adjustable-rate mortgage, your rate will change in tune with the market. As rates rise, you may be seeing the effect on your monthly mortgage payment.

With this, you can refinance into a fixed-rate loan so your monthly principal and interest will remain the same for the life of the loan.

How Much Does Refinancing a Jumbo Loan Cost?

Many mortgage lenders charge about 2-6% of the loan amount to refinance a jumbo loan.

Here at JVM Lending, we only charge about $3,500-$4,000 for a refinance (without impounds) and can roll in the costs as long as we meet 20% equity in the home!

A quick note on impounds! In California, your property tax bill is paid in two installments.

The first installment covers July through December and the second comes due in November which covers January through February (only three months after the first).

Can You Break Down What My Property Tax Payments Will Look Like?

Let’s assume your first mortgage payment is due September 1st.

By the time your property tax bill comes due in November, you will have made 3 months (September, October, and November) of property tax payments to your mortgage servicer. However, 6 months’ worth of property taxes will be due, so your account would be “short” by three months.

How to Estimate Future Property Tax Payments

The next property tax bill due in February is only three months later. You will have made 3 property tax payments (December, January, and February) to your mortgage servicer but again, you will be three months short.

The 7 months of impounds collected upfront make up this difference in your impound account. An extra month is collected as cushioning for the account.

This means your cash to close will be higher if you choose to have an impound account as you are paying some of your taxes upfront rather than on your own in a lump sum twice a year.

Can You Roll the Fees into the Refinanced Jumbo Loan?

As long as you have enough equity in the home, you can roll the fees into the refinanced jumbo loan mortgage. However, the guidelines are lender specific and differ by each jumbo investor.

How Long Does a Jumbo Refinance Take?

We estimate a refinance to take about 45-60 days. During this period, you usually would have ~1 mortgage payment due.

We always recommend paying this as normal. If it is not, the lender will need to add an additional 30 days of interest to the old loan.

The Bottom Line

If you are looking to refinance a jumbo loan in California, reach out to our mortgage experts at JVM Lending!

Our team can elaborate in-depth on loan terms, answer any questions you may have about your current jumbo home loan, and determine if refinancing is right for you.

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