5% Down No Monthly PMI (First RE Investment)

[Nathan F.]

I've been looking for an Owner Occupy multifamily property for about 6 months now. Everything in my town that has been for sale has been either in shady neighborhoods or overvalued houses that need lots of work (which I wouldn't mind, if the price justified the work needed).

I have been renting a nice duplex in a upscale neighborhood, only duplex in the entire subdivision. Very quiet, no traffic, and I know all the neighbors. My landlord is an realtor and have had him looking for properties for me. Few months ago I asked if he would sell the duplex to me, at the time the answer was no, it didn't make sense to him. Yesterday he called and said he'd like to sell. We are very close on price, so I think we can get a deal.

He has currently offered about 3% less than market value (which would be the buyer agents commission on the MLS) , I was initially thinking about 6% less than the market price. Because when I run all the numbers under 100% financing I get $100 Cashflow per door ($200/Month) if both rented, but in reality, I'll be living in one of the units for awhile.

I was thinking FHA financing, until the PMI comes into play and just beats all the cash flow out of the deal. With FHA Financing (assuming renting both units for the numbers) I get a $28 Cashflow per door ($56 total)

I have cash to get to 5% down, I don't mind paying upfront PMI or slightly higher rate. Has anyone found loans like this, 5% Down, no PMI?

If I can get rid of FHA monthly PMI, My Cashflow gets up to $185 a door or $370 per month. Now that makes a lot of sense to go ahead with the deal.

[Jesse Gonzalez]

Yes, you can do what's called borrower paid single premium MI which is a one time up front cost that will cover the mortgage insurance for the life of the loan and you won't have to pay monthly MI. When I run the numbers on scenarios like this you'll usually see a recoup on the up front MI in about 5 years, sometimes less, but that's a good idea. If you the route of single premium MI you can ask that the seller pays it, meaning that you can bump the purchase price up by whatever the cost of the single premium is and have that amount credited back to you by the seller at close to pay for the premium. That way you won't have to come out of pocket at close directly and you won't have monthly MI. You can also do lender paid mortgage insurance which would increase the interest rate on the loan to cover the MI but now you've added to the monthly payment and that's not what you're looking to do. Also, you'll carry that rate through the life of the loan which is not beneficial to you if you plan on staying long term. Hope this helps.