We want to purchase a foreclosed house, but we will need to take mortgage out for the purchase. We will be living in the home and it needs some work. In order to make an offer on the house we need proof of funds. We have the money for the repairs, but if we pay for the repairs and borrow the purchase price then we will have PMI. Advice please.

If you take out a conventional loan, you should be able to have the home re-appraised after you make the repairs and remove the PMI.  This would be dependant upon the new appraised value being enough to get 20% equity in the home.

Kent gave some good advice.

You can look into a 203k loan from FHA (rehab loan). Once again, you will have mortgage insurance, but this may get you to keep more of your money. I think that the repairs have to be less than $35,000. Sorry this doesn't answer your PMI question, but may be an option for you to look at.