Buying 1st Home and Private Mortgage Insurance (PMI)?

Question

Question... I'm purchasing a home from a family member and do not have 20% to put down. Since i'm purchasing this home under the value of the home (basically i'm getting a discount from family) is there anyway to use the difference between the value of the house and the sell price as the 20% down? Basically like there was equity built into the home with the discount.

I'm sorry if i'm not making too much sense. Hope someone can answer my question. Besides the obvious "contact your lender for the answer"

Answer 1

Have you looked into an FHA loan. They required less down and your PMI can be financed. So if you want to buy a home that is $180,000 and your loan is for 160,000 and you can put 20000 down (just over 10%)  Through FHA your loan would end up being 162,400 with the 2,400 coming from the PMI. It makes it cheaper for you on your monthly payments.

Answer 2

No, you cannot use the difference between market value and sale price as a "down payment" and thereby avoid PMI.

Sorry, that's just the way it's set up.  Wish I had better news.

Answer 3

When you refinance, you can avoid the PMI with a high appraisal.  When buying you can not.  The purchase price alone is used to set the loan amount. Your question makes sense. No one likes to pay PMI.  I have paid it many times.  I was 49 years old before i had enuf down payment to not pay PMI. /

Answer 4

I've seen some other answerers on other questions like this say that some banks will let you avoid the PMI if your appraisal give that 20% cushion.  However in all my experience the bank will simply take the lesser of the sales price and appraisal and say they need a 20% cushion beyond those prices (ie is sales price is 100K and appraisal is 120K, they will still say the loan must be 80K or less, 80% of lower number, to avoid the PMI).

So, I think you are going to have to pay the PMI, no matter what (assuming you don't put 20% down).  Note, however that after 3 years if your house appraises with more than a 20% cushion then they will get rid of the PMI at that point - ie you don't have to wait until you've paid down the loan to give you a 20% cushion you just have to prove at some point after the 3 year mark that you now have the 20% cushion.

Answer 5

NOPE.

After you buy the home, you can get a paid appraisal and show that you have 20% equity and dispense with PMI, depending on your PMI contract--read it carefully.  There is the Gift of Equity option, but that may/can have a negative tax impact on your relatives.

Do talk with your lender, with several lenders to see, but creative structuring is rare now.

Answer 6

Your family can provide a "gift of equity" meaning they'll give you the 20% down payment.

For instance, say your house is worth 200K, but you've agreed to buy it for 180K from them.  Instead of giving the down payment from your own money, they can provide a "gift of equity" and forefeit the extra 36K they'd get.  It depends on how generous your family is.  These days you probably need at least 5% saved up as 'reserves' even if you don't use it for the downpayment.  Banks don't like lending money to people they know have no money saved.

Other than that, not much you can do if you don't have the $$.