Down (3.5% v. 10%) PMI, Liquidity, Gains, Taxes, Projections

[John Smith]

Have been reading forums & listening to podcast for over a year. Focused on cash flow & so on multi-families in part because of Bigger Pockets. Bought our 1st property last spring ($94,000 3-unit, using conventional mort w 25% down, with $1,650 in rents).  This might be my first question here. 

Now buying second property ($170,000 4-unit, using owner-occupied FHA mortgage). Trying to decide between FHA options, whether 3.5% down with 30 years of PMI or 10% down with only 11 years of PMI. My 11-yr projections of course favor 3.5% down, as the PMI is a push over 1st 11 years & the 3.5% down allows us to keep $11,044 in our IRA & make gains over that period. Now, my 30-yr projection of course favor 10% down, as eliminating 19 years of PMI plus the possibility of making gains on those savings is huge. However, due to the gains made by leaving money in our IRA initially & avoiding taxes on IRA withdrawal, the 3.5% down option is far more competitive than expected, in terms of a basic projection. And when I consider liquidity, the possibility of a refi, the possibility of high inflation, the possibility PMI will remain tax deductible, & such, it seems the 3.5% option is slightly superior. I am especially attracted to the liquidity advantage.

Any advice regarding my assumptions, calculations, or reasonings will be appreciated. Thanks!  

Price: $169,900

Interest rate: 3.75%

PMI: $115 per month

Down 3.5%: $5,947

Down 10%: $16,990

Taxes to be paid on IRA withdrawal required to cover 10% down, assuming 25% tax rate: $2,761

PMI over 11 years: $15,180

PMI over 30 years: $41,400

Gains assumed to be 5% annually (e.g. money left in IRA, money saved by avoiding tax penalty, money saved by not paying PMI)

*Have not factored in inflation, taxes beyond the initial taxes paid on IRA withdrawal, or the penalty on IRA home-buying withdrawal over the $10,000 allowance.

*If PMI is tax deductible over life a mortgage, then 3.5% will perform better, but there is no way to know whether it will retain its status.

Projection (11-yr) = 3.5% down beating 10% down by $18,066

Projection (30-yr) = 10% down beating 3.5% down by $28,864