First Real Estate Investment - Best loan scenario?

[Richard Waterstreet]

Hey BP! I just joined the site about a week ago after ratifying a contract on my first home and have been consuming as much information on the site as possible ever since! I've been seriously looking to buy my first investment property in Arlington, VA for the past few months and have been window shopping for years while saving up for a 10% down payment and really getting to know the area and potential up and coming neighborhoods. I am currently renting a unit that I love and is in an incredible location, floor to ceiling window views of Arlington National cemetery, 0.5 mile to metro station (two lines), two floors, 2 bdrms, 2.5 bths, parking, storage, access to monuments/parks...all the things that would make an excellent future rental but also is perfect for me now while I build my career in the city. My search ended when my landlord asked me if I would like to purchase the home I'm currently renting before he put it on the market in the summer, so I am buying this property with no realtor and am using a real estate attorney to represent me. It's been exciting negotiating my own price and learning along the way.

I'm having a hard time debating which financing scenario to run with right now. The sale price is $480,000 and I have 10% to put down. I debated for a bit taking money from my 401k to reach the $417,000 threshold to obtain a lower interest rate, but that didn't seem like the best option given the opportunity cost of removing the funds (aside from my current feelings on the market). My problem is I cannot decide whether to go with a PMI loan or non PMI loan. I feel like I negotiated a great price and just found out yesterday that my neighbors who have the exact same unit as I do just refinanced and received an appraisal value of $100,000 higher than what I am paying. Amazing news. I have not yet received an appraisal on my property, however my unit is the same floor plan as theirs. Given all this information, I cannot decide the best financing option. I am currently locked in at 4.125%, 0 buy down, NO PMI. I have however another GFE for 3.75%, 0 buy down, PMI of $240 a month which makes the payment $150 higher than what I'd like it to be. Most banks have informed me that even if I have the additional 10% in equity at purchase, there is a two year minimum time frame I must pay PMI. Do either of these make sense or should I lock into a very low rate 5/5 ARM and just refinance to a 30 year fixed after a month when I have 20% in equity? Is there a scenario I'm not considering? I've been told that the initial bank appraisal would most likely be close to the purchase price. My strategy for this property is a long term hold, since 1995 this property has tripled in value and I'm hoping history may repeat itself.

Sorry for the length, I wanted to make sure I posted all the pertinents! I need to make a decision soon and am at my wits end.