Regarding PMI: I had PMI on a condo I once owned in Hawaii back in the late 1990’s. I did the FHA 3% that you are considering. I bought when prices were low for the area. 18 months after the purchase, prices jumped 20 %. I called the bank and said simply “prices are up, my assessed value on my tax bill is up, drop my PMI”. The PMI was dropped with no questions asked, because I now had the equity I did not have at the time of purchase. PMI worked out fine for me under those circumstances.

Now, we are in a completely different atmosphere now. Many analyst are not expecting 20 % price gains anytime soon. That said, the PMI is good because it allows you to make the purchase if you decide the timing is right. Its really all about your comfort level and what you are willing to pay.

Question for you: How long would it take for you to save the 20 % down payment in the price range you are considering? If your answer is 3 or 4 years, perhaps waiting would work well for you. If your answer is 10 years, then you might well have to pay PMI, or secure a second mortgage for 17 % of the purchase price.