> In the US, most home buyers will qualify for a much lower than 20% down payment for their primary residence.

Well, that's true in the US in that, so long as you have sufficient income to make the payments, you can probably fine subprime financing for purchases with less than 20% down, but you'll pay more for it than you would for the same size loan with more equity (whether in PMI, interest, fees, or some combination.)

But if you're your counting on rent from your friends to pay the mortgage, you're no longer a residential homebuyer, you're buying an investment property and typically higher standards apply.

So realistically, the only way you could buy a house and rent to your friends is if you can qualify to buy the house on your own.

DTI ratios are usually pretty generous, but if you can't qualify without the rental income, you may need to buy a 2-4 unit building and rent the other units to friends. This can be done with an FHA insured loan. It may be possible to count rental income on a 1 unit property under some programs, I am not fmailiar with all the rules. I don't think you can with an FHA loan, though.

AFAIK the rental amounts count for 75 cents on the dollar against the mortgage total, and you need to either have experience being a landlord or have a signed letter of intent to show the underwriter.

What? That's not how the qualification works. If it's no bigger than a 4-unit building and is going to be your primary residence, you can still qualify for a FHA loan at 3.5% down.

My bank required proof of income sufficient to qualify for the mortgage -- presumably if part of that proof was "4 of my friends promised to pay me $1000/month each to rent a room in the house", that would no longer qualify for a regular homeowner mortgage program.

This likely comes with a monthly PMI payment. Correct?

Do people know situations where its possible to not have PMI with a bit less than 20% down?

Ideally they wouldn't increase your rate then. I know SoFi has no PMI with 10% down but I believe rates are slightly higher.

You can ask lender to drop PMI once 20% downpayment is reached.

Yes, in most cases.