20% Seller holdback to eliminate PMI

[Steve Sapowsky]

Can a seller hold 20% of the mortgage as the down payment if the property is not paid off? Could I offer the seller $40k higher than asking price and have that profit go into the deal as the down payment? Keep in mind the sellers are my parents and they are very open to helping me in any way they can. I really want to avoid PMI. Any other suggestions would be awesome. Thank you!

[Scott Hollister]

Hello @Steve Sapowsky,

The discussions from our group in CT is that lenders like to see "skin in the game." My advice is go straight to a lender and get prequalified, tell them this scenario and see what they say because they are the ultimate yes or no. 

• What does it appraise at and what equity do they have in the property? 
• Are your parents willing to sit on the down payment money until you pay in full? 
• Does the property need any work? (Force appreciation) 
• You can't offer them higher than asking price, I mean you can if you had cash but a bank will not loan higher then the appraised value.

I think in order to make this a "best case scenario" deal you would approach it as a BRRRR strategy to force as much equity as possible. Speak with your parents and offer them less than market value, remember you're saving them money on agent fees and time by trying to market and sell a home.

My best suggestion? Will you consider a house hack multifamily? Remember, you're trying to create wealth and positive income streams. If a single family home is costing money out of pocket then it is not an investment, despite what everyone else will tell you. (You can try a live in flip if you have forced appreciation in mind, if the property needs some repairs and you can add value within those first two years) 

Best of luck with the choice Steve!