A buddy of mine is stealing a house from his neighbor that is desperate to sell. Just got appraisal back at $320k. He's buying the house for $200k (yes, they are desperate to sell) and isn't putting much if anything down. It's his first mortgage, but he should have perfect credit, work history, and debt to income stats.
He says he has shopped a few lenders/brokers and everyone still wants PMI. I would think that low LTV would opt him out. Is it the "no money down" that's triggering the PMI or just the current housing situation?

Yes, it requires PMI unless he does an 80/20 or gets lender paid PMI which they raise the rate and hide it in the rate. Otherwise, everyone would be getting fraudulent appraisals jacking up the value to avoid the PMI. Or if he's a veteran with VA there is no MI, just a one time fee. There are a few other options but usually he's better off to buy it and hold it for 6 months then refinance out of it. That is what we usually do with borrowers who get good deals on their purchases. As long as his closing costs are not outrageously high anyway. Some brokers will really bend you over on their fees. Careful.

LTV is based on the lessor of appraised value or sale price.

Therefore he needs to be at 80% or less of the $200K to avoid PMI.

Aha...that makes sense...

He can also pay for his PMI all up front at the time of purchase, instead of paying it monthly. It is around 1.3% of the purchase price. My last client just went with that option. It makes sence on a 30 yr. mortgage. If you would like, you can give him my number and I will answer any questions he might have. Contact info: Scott Moses 702-400-4626. I am a District Manager for Indymac Bank and lend in all states. Hope I can help.

He should be able to take out a second mortgage or heloc at the same time as the first mortgage and avoid the PMI completely

hate to be stupid but what is pmi

wouldn't exactly call it legal but write the contract for $250K with $50K down payment....the bank would see that as 20% down and not require PMI.

Can't remember the exact name but it's basically payment insurance. If you don't make the payments it covers the difference in what the bank sells it for if they can't get what you owed. If you put down 20% (or when you pay it down to 80% of what you borrowed) they will remove that "insurance" payment if requested in writing. They figure it will sell at auction for at least 80% of value and therefore their risk is minimal. Paying 20% of what was borrowed also shows that YOU have a fair amount of your OWN cash wrapped up in the house and are less likely to just walk out on the mortgage. (after 3 years I was able to have PMI removed from my mortgage).

PMI = Private mortgage insurance.