How do you avoid paying jumbo mortgage rates on a jumbo-sized mortgage? 

You go off the beaten path to find a lender, that's how.

It's pretty simple when we break it down.

The word "jumbo" is a Wall Street-specific term for home loans larger than $417,000.  In certain "high-cost" areas, the number can be as high $729,750. 

Lately, though, rates on jumbo mortgages have been awful compared to its cousin, the conforming mortgage.  In addition, jumbo mortgages carry significantly higher loan fees. 

The price disparity is even worse for so-called "Super Jumbo" mortgages.  A super jumbo mortgage is similar to a jumbo mortgage, but bigger.

But the thing is, the terms "jumbo mortgage" and "super jumbo mortgage" -- these are words for a Wall Street-bound loan.  They're buckets into which certain mortgages are crammed for purposes of a classification. Just because your loan size exceeds $417,000 doesn't mean that you have to suffer. 

Avoiding the high rates and loan fees of a jumbo or super-jumbo mortgage is easy -- all you have to do is keep your loan away from Wall Street.

Because Wall Street created the convention of "jumbo" or "super jumbo" home loans, a non-Wall Street loan isn't subject to the same restrictions.  This is why bypassing your neighborhood Big Bank in favor of a smaller, niche mortgage lender could be a sound mortgage decision. 

Different from Big Banks, niche mortgage lenders don't package their mortgages for Fannie Mae or Freddie Mac and this allows them to make their own mortgage lending rules -- some of which look like blasphemy to the Big Bank crowd:

• PMI typically not required above 80% loan-to-value
• 100% of funds needed at closing can be gifted from anywhere
• Closing within a LLC or other corporation is permitted

And, on top of that, mortgage rates with niche mortgage lenders smoke what Wall Street has to offer.

I am currently quoting a $2,000,000, 7-year ARM at 5.500 percent from a niche lender in my stable.  For comarison, I tried shopping the same product at several Big Banks -- none of them would even look at the loan, let alone try to price it.

And, there are plenty of other examples like this, too. 

Consider the following niche lender mortgage scenarios, each of which is carrying a mid-5-percent mortgage rate as of this morning:

• $900,000 mortgage with 10 percent down, primary residence
• $1.5 million mortgage with 30 percent down, vacation home
• $2.0 million mortgage with 30 percent down, primary residence

Again, none of these mortgages are approvable through traditional banks channels including Chase, Bank of America, Citibank, and Wells Fargo.  It takes a niche lender to get it done. 

Now, finding niche lenders isn't always easy, but it can be worth the extra effort.  Mortgage rates are often lower, downpayment requirements are often smaller, and the underwriting process is often smoother.  As a mortgage broker, I work with a lot of them.

If you're having trouble finding a bank to service your "large loan", send me an email anytime.  I lend in all 50 states and am sure I can help you find one.

Author's note: The 2009 Conforming Loan Limits by County are not publicly available.  When they are, I will update this post accordingly.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.