Avoiding PMI with instant equity in home?

[Katie Sylvia-Shea]

Hi all!  My mother is simplifying her assets and I am trying to figure out a  creative way to purchase her home that will be beneficial for both of us.  The home is outdated and has a lot of value to be added by repairs, however, it is in an increasingly expensive market (central coast California) and the house is worth much more than I was planning on paying for my first property.  What I would like to do is buy it for what she owes ($350k), owner occupy while I rehab it, and cash out refinance to pay her what she would like to make from the sale and myself for the rehab.  I estimate about $40k in repairs and the after repair value in the current market to be in the $550k-$575k range.  

My question is this: Is there a way to avoid paying PMI in this scenario without putting 20% down? I am pretty familiar with the way PMI works in typical circumstances but was hoping someone might know of a way to not pay given that the sale is between parent and daughter and that at the initial purchase I would have more than 20% instant equity in the property.

Also, any other feedback or advice on this scenario would be super helpful!  

[Ben Tilbury]

@Katie Sylvia-Shea Great question, first off what market or city are you in? If you're nearby I'd be happy to sit down and run the numbers with you after just completing a flip here in SLO. Not sure what the home needs but $40k seems like a very small budget rehab which may or may not suffice. It really depends if you're just talking paint and flooring or full on remodel with kitchen and baths. On to the part how you structure the deal so you avoid PMI, well there's a few ways to go about it and it helps since it's a family member who may be willing to work with you. The easiest would be a purchase option contract in my opinion. In this scenario you'd agree on a purchase price and then you would start paying the remaining mortgage and assume control the property to do your renovations, then when complete you excercise the option contract and transfer title simultaneously with your new financing and they fund the deal and pay your mom at closing and transfer of the title. In thos scenario you were able to get you're 20% sweat equity from your renovations and improvements to the property so with the right loan option you won't have PMI. Although it really depends on what sort of loan you get since you will not be "owner occupying" longer than a year I'm assuming and in some or most cases you need 25% for un owner occupied rental properties. I do know you mentioned you'd be doing a live in flip but depending on time and your intentions it wouldn't technically fall under the investment property loan category. Check with my lender @Mike Poyntz with Coast Coast Lending as to the best loan program for what you're trying to do since there are so many ways on make this work, you could even do a rehab loan and get the rehab costs worked into the loan amount. Id be happy to help out to in any way I can so feel free to contact me.