Conforming loans are known as "A" loans. These are loans that are funded by Fannie Mae (FNMA) and Freddie Mac (FHLMC). Jumbo loans are loans that exceed the maximum limit funded by Fannie Mae and Freddie Mac (currently $417,000 for single family homes). Jumbo loans, bad credit mortgage loans and any other type of non-conforming loan are known as "B" loans. "B" loans are more typically referred to as sub-prime loans which are underwritten by sub-prime lenders. Because sub-prime lenders don't have to follow conventional underwriting rules, they have more latitude in lending practices. As a result, even if you have low credit scores, you may still be able get a jumbo refinance loan for your large mortgage at near conventional rates.
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Why Refinance with a Sub-prime Jumbo Loan? If you currently own a home, have equity, and need to consolidate and pay off credit card bills, collections and other loans, you can do a cash-out or debt consolidation refinance. How much equity do you have? The way a lender determines that is to calculate your home's loan to value (LTV), which is the appraised value of your house minus the principal balance of your first mortgage. A refinance would allow you to pay off debt and get a fresh start, while saving a lot of money over high credit card interest rates. On top of that, up to 100% of the interest you pay could be tax deductible.
You may also be able to cash out your equity with a home equity loan (second mortgage). For second mortgages, lenders determine the equity by how much your home's combined loan to value (CLTV) is. This is different from the LTV in the respect that the principal balances from ALL mortgages (typically 1st and 2nd) are subtracted from the property's appraised value. Once again, you could end up saving a lot of money with the lower interest rates you'll be paying and the interest you pay may be up to 100% tax deductible.
Refinancing to consolidate and pay off debt is an excellent way to raise your FICO credit scores. According to myfico.com, taking steps to improve your FICO scores can help you qualify for better rates from lenders. So, once your credit scores improve, you could refinance your first or second mortgage again for a better rate.
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