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How to Get the Best Rate on a Jumbo Loan Refinance

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Sometimes the typical limits on loan amounts may not be enough to allow you to buy or refinance your home — especially if you live in a high-cost area. In that case, you may need to apply for a jumbo loan.Jumbo loans can be harder to get than their traditional, conforming counterparts, but it’s far from impossible. Follow these tips to learn how to get the best rate on a jumbo loan refinance.

What is a jumbo mortgage?

In order to understand what a jumbo loan is, it first helps to understand how the conventional mortgage system works. Most residential mortgages in the U.S. are backed by Fannie Mae and Freddie Mac. These two government-sponsored enterprises buy mortgages from lenders, bundle the ones with similar terms together, and then sell them as mortgage-backed securities to Wall Street investors. More importantly, they guarantee that if a mortgage defaults, they’ll pay off the loan to investors.

Each year, the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, sets maximum amounts for the loans that they agree to purchase from lenders. In general, most loans fall within these limits, so they’re known as “conforming loans.”

However, in some areas, where the cost of living is higher, the standard conforming loan limit may not provide sufficient funds to buy a home. In these cases, it’s possible to get a loan that exceeds these limits, though it will often cost more. These larger loans are known as “jumbo loans.”

In 2019, the standard conforming loan limit is $484,350, while the loan limit for high-cost areas like Hawaii and Alaska is $726,525.

When should you refinance a jumbo mortgage?

If you already have a jumbo mortgage, here are some reasons you might want to refinance it:

If you want a better interest rate

One of the main reasons to refinance is to get a better interest rate. Your interest rate closely affects how much you pay for your mortgage each month. A lower rate will mean lower payments.

The rates you’ll be offered are largely a consequence of current market conditions and your credit score. Now may be a good time to refinance if:

  • Current interest rates are much lower than they were when you first bought your home.
  • Your credit score has improved drastically since you applied for your mortgage.

The Federal Reserve raised the federal funds rate four times in 2018, and two or three more rate hikes are expected in 2019, according to Tendayi Kapfidze, chief economist for LendingTree, which owns MagnifyMoney.

Now is a good time to refinance, said Hillary Legrain, vice president of First Savings Mortgage Corporation in McLean, Va. “Because of the fluctuations in the stock market, rates are a lot lower than they were in the fall.”

If you need to cash out to cover expenses

Another reason to refinance is to tap into the equity of your home. Your home equity is the portion of your home that you own outright, or the difference between the value of your home and the balance on your mortgage.

When needed, that equity can be used to finance life’s big expenses, like medical debt, home improvements or college tuition.

One way to access your home equity is to do what’s known as a cash-out refinance. In a cash-out refinance, you replace your mortgage with another loan that’s bigger than what you owe on your home. You then receive that difference in the form of a cash payment, which you can use any way you want.

If you’re ready to change your loan terms

You may also be ready to refinance your mortgage if you’d like to change the terms of your loan. Usually, when we discuss loan terms, we’re referring to either the length of the loan or the type of interest rate.

Typically, a mortgage will be either 15 or 30 years in length. A 15-year mortgage lets you pay off your loan faster, but comes with higher monthly payments. A 30-year mortgage will keep your payments low, but it will take longer for you to truly own your home. Depending on how much you can afford to put aside for a mortgage payment each month, you may want to switch from one to the other with a refinance.

Alternatively, you may want to switch your interest rate type. There are two types of interest rates: fixed-rate and adjustable-rate. A fixed-rate mortgage stays the same over the life of the loan, while an adjustable-rate mortgage changes in accordance with current market interest rates. Many people decide to change to a fixed-rate mortgage because they want predictable monthly payments, but you may be able to get a lower interest rate if you go with an adjustable-rate option.

Challenges of refinancing a jumbo mortgage

Qualifying for a jumbo loan is more difficult than a conforming loan, Legrain said. “The lender is taking more of a risk because the balance on the loan is higher. As a result, the requirements that you have to meet in order to be approved are stricter.”

Below are some common qualifying requirements for jumbo loans:

Debt-to-income ratio

Looking at your debt-to-income ratio is a way for lenders to measure how likely you are to be able to repay your debts. It’s the measure of the sum of all your monthly debts divided by your total monthly income.

“For a conforming loan, your DTI has to be less than or equal to 50%,” Legrain said. “But for a jumbo loan, that number drops to 43%.”

Reserve requirements

When you go to buy a home, lenders will look to make sure that you still have money in the bank after your down payment and closing costs. This money is known as cash reserves, and is usually expressed as the number of monthly mortgage payments you’d be able to make using those assets.

“The reserve requirements you’ll face will vary according to the lender,” Legrain said. “However, on a jumbo loan they will be much higher. You’ll be expected to prove that you have anywhere between six and 12 months of mortgage payments in the bank.”

Credit score

The minimum credit score for a jumbo loan starts at 680, but could be even higher, according to Legrain.

In contrast, conforming loans guaranteed by the Federal Housing Administration (FHA) require a credit score of 580 to take advantage of its low 3.5% down payment. The FHA will accept even lower scores if you’re able to put down 10%. On the other hand, conventional loans require a credit score of at least 620.

Loan-to-value ratio

Your loan-to-value ratio (LTV) is how much you’re looking to borrow in comparison to the overall value of your home.

Loan-to-value limits are usually lower for jumbo loans than they are for conforming loans. “On a no-cash-out refinance, you can go up to 97% with a Fannie Mae conforming loan amount, but with a jumbo loan you are usually restricted to 85%,” Legrain said.

Ways to get a low jumbo mortgage refinance rate

You’ll need to give your lender some financial information to find out whether they can approve you for a loan and, if so, at what rate, according to Legrain. They’ll want documents similar to those you’d provide for any refinance. They include:

  • Copies of paycheck stubs for the most recent 30-day period
  • W-2 forms for the previous two years
  • A copy of your federal income tax returns for the previous two years

However, once you get one rate from a lender, don’t stop there. Shop around. Once you start getting pre-approved for a mortgage, you have a 45-day window during which all mortgage inquiries on your credit report will count as one. Credit bureaus agree to this because they realize that you’re only going to buy one home, and they want to give you a chance to find the loan that works for you.

In addition to getting loan estimates, Legrain stressed the importance of asking questions to find out if a particular lender is the right fit for you. She suggested the following questions:

  • What rate can you offer?
  • What are your fees?
  • What are the loan-to-value restrictions?
  • Are you local to my area?

“Working with a local lender is important because national lenders aren’t aware of local programs, so they get overlooked,” Legrain said. “Also, they may be using appraisers from out of the area, who may not know the differences in value between different neighborhoods.”

The bottom line

Getting a jumbo loan might be more complicated than getting a traditional mortgage. However, it can be done. By shopping around and making sure to ask the right questions, you should have a good chance of getting a jumbo loan refinance that works for you.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Tara Mastroeni
Tara Mastroeni |

Tara Mastroeni is a writer at MagnifyMoney. You can email Tara here

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The Pros and Cons of a Credit Union Mortgage

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

co-op shared branching for credit unions
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Though banks are better known, their not-for-profit cousins known as credit unions still command a significant chunk of the mortgage market. During the first quarter of 2019, credit unions originated 8% of mortgages in the United States, according to credit union consulting firm Callahan & Associates.

Often overlooked, credit unions can be a good option when shopping for a mortgage. Joining a credit union can make it possible for you to reap benefits such as lower origination fees or a more competitive interest rate.

This article will explore whether homebuyers might get a better deal from a credit union mortgage and the implications a relationship with a credit union might bring.

How is a credit union different from a bank?

Although credit unions fall under the umbrella of financial institutions, they differ from commercial banks in several key ways.

Banks are typically owned by their shareholders, credit unions are not-for-profit organizations owned by their members. This often translates to better rates and terms on their financial products.

While banks can serve the entire nation, credit unions tend to be community-based institutions that play a significant role in serving people in a local area.

“Credit unions are a really important part of the financial services fabric,” said Barry Zigas, director of housing policy at the Consumer Federation of America in Washington, D.C.

On the other hand, credit unions typically don’t offer the same suite of products that a larger bank is often known for. While you can take advantage of a checking, savings or individual retirement account, for example, you may find it challenging to access financial planning or investment services.

Below we highlight how credit unions stack up against banks.

Credit Union Commercial Bank
  • Not-for-profit organization
  • Member-owned
  • Typically have higher yields on deposit accounts
  • Typically have lower interest rates on credit and loan products
  • Membership is based on an affiliation or geographical location
  • Smaller branch and ATM networks
  • Federally insured up to $250,000 through the National Credit Union Administration
  • For-profit organization
  • Shareholder-owned
  • Yields are usually lower on deposit accounts
  • Interest rates on credit and loan products are usually higher
  • Anyone can establish a relationship with a bank
  • Larger branch and ATM networks
  • Federally insured up to $250,000 through the Federal Deposit Insurance Corp.

Getting a mortgage from a credit union

One of the main differences when applying for a mortgage through a credit union rather than a traditional bank is that you must be a member of the credit union before you can attempt to borrow money.

Credit union customers own “shares” in the institution, typically via a $5 deposit held in a particular savings account.

In order to become a member, you must meet the membership requirements outlined by the credit union you’re interested in joining. Credit union members have a common bond, which could be any of the following, according to the National Credit Union Administration:

  • An employer.
  • A geographical location where those interested in joining live, work, worship or attend school.
  • A group membership, such as a homeowners association or labor union.

Family members of credit union customers are also often eligible to join.

One of the key reasons for choosing a credit union: You may be able to save money on lender fees, said Bruce McClary, vice president of communications at the National Foundation for Credit Counseling. A credit union may also be more flexible with credit score requirements than a bank and may offer lower mortgage interest rates.

However, since credit unions are small organizations, there’s the risk that your credit union’s name or ownership could change. Your credit union could also sell the rights to service your mortgage to a third party, which may impact your customer service after your loan closes.

“Even though you may be saving money on origination fees and you may not be paying as many other fees with your mortgage — so it might be more affordable at the onset — you may end up having to deal with a servicer that you weren’t dealing with before, rather than dealing with your credit union,” McClary said.

It’s important to note that bank-originated mortgages can also be sold and handed over to other servicers, so this issue isn’t unique to credit unions.

Still, developing a relationship with a credit union over time — as in, the organization’s representatives are very familiar with you and your finances — could work in your favor when you decide to apply for a mortgage, McClary said.

“Being a member of the credit union might actually put you in an advantage in terms of approval or maybe in terms of negotiating terms of the mortgage in the application process,” he said.

Pros and cons of a credit union mortgage

Consider the following benefits and drawbacks of a credit union mortgage before you choose this type of lender for your home purchase.

Pros

  • Potentially lower origination fees and other lending costs.
  • Mortgage rates may be lower.
  • A greater sense of community, since the institution is member-owned.
  • Potential for more negotiating room during the mortgage lending process.
  • Shared branching benefits, which allow you to use the services of an outside credit union.

Cons

  • You must meet eligibility guidelines to join the credit union and become a member before applying for a mortgage.
  • Credit unions typically have smaller branch networks.
  • There’s the risk of your credit union closing, switching owners or going through some other changes, which can affect how your mortgage is serviced.
  • Typically carry fewer product offerings than traditional banks.
  • May have limited online banking capabilities.

The bottom line

A traditional bank isn’t your only option for getting a mortgage. Depending on what your lending needs are and how much you value building a relationship with your financial institution, a credit union might be right for you.

However, if you’re concerned about mortgage servicing, be sure to check with your credit union for more information about how they plan to handle your mortgage once it’s originated.

“I think consumers who are members of credit unions should certainly go to their credit union and find out what their loan terms are, what the application process is like and maybe even ask, ‘Are these loans that you hold or are these loans that you sell off?’” Zigas said.

Zigas also recommended practicing that same due diligence with other types of mortgage lenders and shopping around.

“It’s a very competitive environment, and there’s no assurance that your credit union will actually be offering you the best possible rate,” he said.

It pays to comparison shop before you settle on a particular mortgage lender. For example, if you were looking to buy a house that required a $300,000 mortgage, you could potentially save more than $42,000 in interest over the life of a 30-year term by shopping for the best rate, according to data from LendingTree’s latest Mortgage Rate Competition Index.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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We Downsized Our House So We Could Travel the World

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Purchase agreement for house

You’ve settled into your dream house and have called it home for years. But now you realize your family has more house than it actually needs, plus a large mortgage to match. Is it time to downsize?

The answer depends on what your financial and lifestyle goals are. Below, we share one story about a Florida-based family downsizing their home. Giving up 1,600 square feet allowed them to pay off their mortgage in a fraction of the time and achieve their goals of globe-trotting.

Keith and Nicole’s downsizing story

Keith and Nicole DeBickes loved their house in Delray Beach, Fla., but with more than 3,500 square feet of living space, it was perhaps larger than they actually needed at the time. “One day, I came to the realization that I had a 400-square-foot bathroom that I spent 20 minutes a day in, and we had this big formal dining room and formal living room that we never used,” Nicole said. “And we had a really big mortgage to cover it.”

She also wasn’t thrilled with the schools in the area — or with the idea of paying for private education. She and Keith knew they had to make a change.

The DeBickes (who work as an engineer manager and software engineer, respectively, and make between $100,000 and $200,000 combined annually) put their house on the market and started looking for a smaller home that was zoned for better schools.

They eventually settled on a 1,900-square-foot, four-bedroom house in Boca Raton. “We wanted to buy with the idea that we’d have a much smaller mortgage and we wouldn’t have to pay for private school,” Nicole said. “Then we could do things with our family like travel or retire earlier.”

The couple took out a 30-year mortgage for $110,000 in 2007, much smaller than what they had before. They then refinanced into a 15-year loan for $150,000 in 2009 to remodel their kitchen and upgrade their electrical work.

Pros and cons of downsizing your home

Deciding to downsize your house is a major decision that takes a good amount of effort and planning. Consider the following pros and cons before you choose to move forward.

Pros

  • Reduces your mortgage debt.
  • Potentially reduces other housing-related expenses, such as utilities.
  • Frees up cash to reduce or eliminate non-mortgage debt.
  • Gives you a smaller house to maintain.

Cons

  • Reduces your available square footage, giving you less space than you’re used to.
  • Unless you have enough equity to cover the purchase of your new home, you must qualify for a new mortgage.
  • You’ll have to sell your existing home.
  • You will have to shell out thousands of dollars for both your home sale and new home purchase.

Tips to pay off your mortgage more quickly

The DeBickes didn’t like the idea of having a mortgage on their downsized home. “We didn’t want to be working every month for a mortgage,” Nicole said. “We don’t like debt, and we wanted it to be gone.”

The couple buckled down and started making double and triple payments every month on their home loan. They drove older cars, carpooled to save on gas and maintenance and packed lunches to cut down on their food costs. The family took relatively modest vacations, staying with family or driving to the west coast of Florida.

All their diligence paid off — the DeBickles submitted their last mortgage payment in fall 2013.

If you’re on a mission to be mortgage-free sooner rather than later, here are tips to help you get there:

  • Make extra principal payments each month. Try rounding up your monthly mortgage payment. For example, if your payment is $1,325 every month, pay $1,400 instead or increase the amount by even more, if your budget allows. Be sure to communicate to your lender that you want the extra payments applied to your principal balance and not your interest.
  • Pay biweekly instead of monthly. Split your monthly mortgage payment into biweekly payments. Since there are 52 weeks in a year, you would make 26 half payments, or 13 full payments. Making one extra full payment each year could allow you to shave a few years off your mortgage term.
  • Consider recasting your mortgage. If you have at least $5,000 or $10,000 — depending on your lender’s requirements — you could use that lump sum to recast your mortgage. A mortgage recast allows you to lower your monthly payments by paying your lender a set amount of money to reduce your mortgage principal.
  • Dedicate windfalls to paying down your principal. Every time you get a tax refund, bonus or some other windfall, use it to pay down your outstanding loan balance.

Achieving financial freedom

Although they’re now mortgage-free, the DeBickes were still putting money away like crazy. They eventually quit their jobs (temporarily) and traveled abroad for two years with their boys, who were 10 and 7 in 2015. Without a mortgage payment, they were able to amass the $190,000 they thought they needed to travel for 28 months. “We have been living on one salary and saving or paying off the house with the other for 12 years,” Nicole said.

Despite their hefty savings goals, they’ve been able to take the boys to Europe and Costa Rica, too. “We want to really get them prepared for what travel is going to be like,” Nicole said.

The trip, which is outlined on the family’s website, FamilyWithLatitude.com, took the foursome everywhere from Ireland to France, among other spots. Nicole and Keith “road schooled” their children as they traveled, with the help of Florida’s virtual school program that allows them to take classes online.

They planned to rent their home while they were away, which will help finance part of the trip and cover some house expenses, such as insurance and property taxes. In the meantime, they are maxing out their 401(k)s and taking care of college funds for the boys.

“(In 2014) we were able to purchase the prepaid college plan for my youngest son in a lump sum,” said Nicole, who had already done the same thing for her eldest. “So I know that both boys have good college funds to take care of them.”

The bottom line

If you’re looking to move into a smaller home and save money in the process, it might make sense for you to downsize. Just be sure you’re clear on the benefits and drawbacks, and how the choice to cut down your square footage would align with your personal goals.

In the end, the lack of debt will allow the DeBickes the freedom to not only to travel the globe, but to hang out with the important people in their lives.

“With both of us working, we haven’t been able to spend as much time with the kids as we wanted,” Nicole said. “It’s a real luxury that we can do this. I’m looking forward to spending time together as a family.”

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate at [email protected]

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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