I am buying a 350K condo with 10% down, 2.99 interest rate, 30 yr fixed mortgage (I hope to pay it off in 15 yrs).
I cannot put down more without depleting my savings. Should I ask my dad for a $35K loan (with 2.99% interest) in order to avoid PMI? What should be my target in terms of paying my dad back in terms of years to make out 'ahead' of PMI at same nbr of yrs.
Hope this makes sense...I'm terrible at math.
I cannot put down more without depleting my savings. Should I ask my dad for a $35K loan (with 2.99% interest) in order to avoid PMI?
The bank will want to know about this loan. They will factor this monthly obligation into your loan profile. This might not provide any help in avoiding PMI. They will also be concerned that you may be pressured to pay this off even sooner.
This 2nd loan makes them concerned that you may view that obligation as more important and then struggle to pay off their mortgage. PMI will act as an insurance policy against you defaulting. It protects them even though it increases your monthly costs.
What should be my target in terms of paying my dad back in terms of years to make out 'ahead' of PMI at same nbr of yrs.
A mortgage broker may be able to run the numbers for you, and evaluate the impact of the 2nd loan on PMI and your ability to borrow.
Ask about when you would be able to remove PMI if you pay off the loan aggressively.
Obligatory comment regarding gift vs loan: The lender will ask about any other obligations. If they see the transfer of the funds into your bank account, they will inquire about the source of the funds. They will require you and your dad to provide documentation about the loan, or to state that it is a gift with zero obligation to pay it back. Hiding the funds and the loan can move towards fraud.
tl;dr: You could afford a minimum of an 8 year term loan with your dad at 2.99% instead of PMI, and it would be in your (financial) best interest to do this.
Mathematically, if you could get anywhere between an 8 and 30-year term loan from your dad at the same rate as the mortgage, and thus avoid paying PMI, then it's a no-brainer.
As mentioned in mhoran_psprep's answer, you'll need to disclose the loan when you apply for the mortgage along with all other debts, but if you would have been approved for a 90% LTV mortgage, you'll definitely still be approved for an 80% LTV mortgage; it's much less risk for the bank at 80% which is why they don't require PMI below that point.
As for calculating how short your term loan with your dad could be, an average cost of PMI might be around $250/month for a loan of your size. A 30 year loan of $35K at 2.99% has a monthly payment of about $150, meaning your monthly payment for that portion of the mortgage, in comparison to not having it, would be around $400 per month. That would be pretty close to a 8 year term loan with your dad at 2.99%.
Side Note: You mentioned you thought you could afford to pay off the loan in 15 years instead of 30. Definitely check to see how much you can save on the rate with a 15-year loan. If it's significantly cheaper it may be worth it, as long as you're reasonably sure you'll always be able to continue paying it.
Way off to the Side Note: friends and family relationships are often hurt by personal loans that go bad. If there's even a small chance that you could ever default on your dad's loan, and if that might hurt your relationship, then it may be worth avoiding just because of that.
You can obviously go to your bank and tell them that your dad would be willing to give you a loan and ask how that would affect your mortgage. If your dad agrees in writing that repayments only start after the mortgage is repaid or the house is sold, that might help. Just see what they offer.
