Equity vs Down Payments

[Mike Berkaw]

Hi Everyone,

Here's my scenario. I purchased a house cash that needed major rehab for 343k. My friend and I did all the work, he paid for most of the materials and based on comps it should come in at a little over 500k.

I am looking to sell it to my friend for what I have into it and the goal was that the difference in purchase price / equity he would not need to put a cash down payment. (355 purchase / 500k equity). After talking with a lender they are saying regardless of the equity he would still need to put down 20% of the purchase price or get stuck paying PMI. This doesn't make sense to me as I thought PMI was to cover the missing equity in a loan.

Does this sound right? If so, what is the best way to sell the house to him?