Low credit score, low down payment, lease ends in April; Advice?

[Matt Johnson]

Whatup, Bigger Pockets Nation!

This year is finally the year I can get into real estate! I've been terrible with money in the past; mostly because I've been in low skilled, low paying jobs my whole life...until now.

I was jobless and homeless multiple times in my 20's. I even lived in my 4-door sedan for more than half of 2018 while I finished self-teaching myself to be a software engineer.

2019, things are much different! My current cash flow after expenses is $3,100. However, my credit score is just 625.

Oof!

I'm currently renting a room in a house from an old retired couple. My lease ends in April 2019, but they will let me stay until July if needed. They don't like to have a roommate when the live here--during the winters they live down in Arizona. So, I won't be able to stay much longer than June/July before I need to find another place to rent, or my own property.

I will have enough cash in June 2019 for a 3.5% down payment, closing costs, and still have 3-months of mortgage payments in savings. Thus, I'd need an FHA loan.

My credit score is still likely be 650 or less.

Mortgage would be around $1000 (more like $950, but I'm rounding up) with PMI, interest, property taxes. I can rent out one side for $700, then I'd live in the other side for a year.

So, my question is this: would you recommend buying my first rental property with a PMI or waiting a full year to avoid the PMI? I'd need a full year to get to 20% down.

Regardless of what I decide, I still need a place to live this summer. The question is whether I should rent from someone else, or buy my first property.

What should I be thinking about?

If I can rent out the other side of a duplex for $700 and my mortgage is $1000. That means rent is $300 for myself, then $50 for electric, $50 for water, $50 sewage, and $50 for internet, then I'm looking at $500 it will cost me, which is what I'm currently paying in rent now.

When I move out in a year, I could rent my side out for $500, and they would pay their own utilities. That would be $700 + $500 = $1,200 and my mortgage would be $1,000. Thus, a net positive of $200 (not including repairs, vacancy).

However, if I wait until January 2020, my credit score could be 700 or greater (I think). I'd have 20% for a down payment and I could avoid the PMI.

But, I don't know if mortgage interest rates will increase by then

If I get this first property, then I can more quickly get my second property. However, if I get my first property and I don't make money on it because of the higher interest (because of my poor credit score) and the PMI, then it's a bad decision to buy with PMI.

What's the consensus around here? Is PMI with a low credit score a bad idea? Or is getting that first rental more important because I'll learn the industry first hand by being in the game?

What are your thoughts?