I have a question about PMI. The house I am trying to buy appraises for 130000. The owner is a family friend and is willing to sell to me for 75000. Since this amount is well under the worth of the house why is my bank requiring I pay PMI?

Jenifer,
I am assuming the purchase price is 75000. And the appraised value is 130000.
Your bank, or any residential lender for that matter, will only lend on the purchase price, not appraised value.
If you are borrowing the entire 75000 that is 100% LTV. All residential lenders require PMI on the top 20%LTV.
You have two choices to avoid PMI.

1.)Only borrow 80%LTV = 60000 and bring 15000 of your own money plus closing costs.

2.)Do what is called a 80/20 piggyback mortgage.
80%=60000 first mortgage
20%=15000 second mortgage.
I also have lenders who will allow up to 6% seller consessions.
This means the seller is allowed to contribute up to 6% of your non recurring closing costs.

I recently had a client opt for the second option and it only cost him $105.00 out of pocket to own his own home.
Depending on what state you are in I will be able to advise you more if you would like me to.
Feel free to call me or e-mail me