The Quick Read: Usually, yes, on a conventional loan, but only because of a leverage cap and not because of a special exemption. A second-home cash-out refinance tops out at 75% of the home’s value, and mortgage insurance starts above 80%. The insurance can come back on a no-cash-out refinance at higher leverage. Occupancy and equity decide the rest.
Mortgage Insurance vs. Homeowners Insurance
Search results for this question get muddy because “insurance” means two things.
Mortgage insurance protects the lender if the loan goes bad. The borrower pays for it, and it depends on how much of the home’s value the loan covers. Homeowners insurance protects the house against fire, storms and liability. Every second-home loan requires it, and it has nothing to do with this question.
This article covers the first kind only. Whether a vacation home can skip it comes down to one number: the loan-to-value ratio at closing.
Why Does the 75% Cap Make Mortgage Insurance Disappear?
Conventional mortgage insurance is required when the first mortgage exceeds 80% of the property’s value. The cash-out cap on a second home sits at 75%, below that line, so the trigger is never reached.
Two agency rules produce this result. Fannie Mae’s Selling Guide requires mortgage insurance on a conventional first mortgage above 80% loan-to-value. Freddie Mac’s Guide sets the maximum for a second-home cash-out refinance at 75%.
Put them together and the loan sits under the threshold. The borrower isn’t finding a loophole. The product simply doesn’t extend far enough for insurance to apply.
That framing matters because it tells you where the “no insurance” answer stops working. It holds only while the loan stays at or below 80%.
Does the Primary Residence Work Differently?
Yes. The cash-out cap on a one-unit primary residence is higher, at 80%. Second homes and investment-type properties get 75% on the cash-out lane. Occupancy sets the leverage, and leverage sets the insurance question.
| Property use | Conventional cash-out cap | Mortgage insurance on cash-out? |
|---|---|---|
| One-unit primary residence | 80% | Not at or below 80% |
| Second home / vacation home | 75% | Not at the cap |
| Two- to four-unit primary | 75% | Not at the cap |
Across the wholesale programs Lendmire places files with, there is also a conventional lane that reaches 89.99% with no mortgage insurance. It requires a 680 score, a 50% ratio ceiling and a thirty-year fixed rate, and it covers a primary residence with a conforming balance. It does not extend to a vacation home. If you own both a primary home and a vacation home, that lane applies only to the one you live in. Exact terms depend on lender and investor guidelines, credit profile, reserves, and property review.
All figures here are subject to lender guidelines and full file review.
How Does a Cash-Out Refinance on a Vacation Home Work?
The loan replaces the existing first mortgage with a larger one. The difference comes to you as cash, or pays off other liens. Lendmire’s cash-out refinance programs follow this basic pattern, and the steps below are what the file runs through.
1. Classify the occupancy. The lender decides whether the home is a true second home.
2. Confirm it is a true cash-out. Equity comes out beyond payoff of the old loan and costs.
3. Check seasoning. The loan being paid off must be at least 12 months old, and a borrower must have been on title for 6 months. There are exceptions, including delayed financing, inheritance and legal awards.
4. Apply the 75% cap. The new loan, plus any other liens on the home, must fit under it.
5. Run the file through automated underwriting. Second homes require it. The finding drives the final conditions.
6. Document the file. Expect lien statements, proof of ownership, hazard insurance that matches the stated use, and reserves.
Equity can be used for any purpose. You can also fold in the payoff of existing liens, closing costs and prepaid items.
The lender typically orders a full appraisal on a cash-out. The automated findings decide the final requirement, so treat that as the norm and not a promise.
What decides the outcome
Four questions carry most of the weight:
- Does the occupancy classification hold up?
- Does the requested loan fit under the 75% cap?
- Does the automated underwriting finding approve the file?
- Do your credit, ratios and reserves fit the guidelines?
The wholesale conventional programs generally start at a 620 decision score, and the automated finding governs most files. Lenders can set stricter overlays on credit, reserves and occupancy proof than the agencies do.
What Counts as a “Second Home”?
Occupancy is where this plan most often goes wrong. Fannie Mae’s occupancy rules set the second-home test:
- You occupy it for some part of the year.
- It is a one-unit dwelling suitable for year-round use.
- You have exclusive control of it.
- It is not a timeshare, and no management firm controls who stays there.
Rental income can appear on the file, but it cannot be used to qualify. A home run as a short-term rental, or controlled by a management company, falls outside the second-home definition. It is then treated as an investment property, and the leverage caps change. That is a different loan product with its own rules, and it falls outside this article.
Answer the occupancy question honestly. Hazard insurance that doesn’t match the stated use is a known red flag on a file, and misstating occupancy to get better terms is a serious problem.
Where Does Mortgage Insurance Come Back?
Mortgage insurance returns the moment the loan goes above 80%. On a second home, that can happen on two other transaction types.
A purchase of a second home can go up to 90%. A limited cash-out (no-cash-out) refinance can also reach 90% under the agencies’ guidance, per Freddie Mac’s maximum LTV chart. Anything above 80% in that range needs mortgage insurance.
Published typical annual premiums run from 0.58% to 1.86% of the loan balance. That is a range, not a quote. Your cost depends on your credit and the leverage of your loan.
Here is the mistake to avoid. Some borrowers hear “second homes can go to 90%” and assume a cash-out can too. It can’t. Cash-out and limited cash-out are separate transaction types with separate caps. A 90% refinance on a second home carries insurance. A 75% cash-out doesn’t. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Edge Cases That Break the Plan
The appraisal comes in low. The cap works off appraised value. If value falls short of your estimate, the same loan amount becomes a higher percentage. A request that sat at 74% on your numbers can land above 75% on the appraiser’s.
You have a second lien. The cap counts subordinate liens too. A home equity line on the vacation property counts against you unless it is paid off or the combined total still fits.
The request lands just over the line. A cash-out above 75% on a second home is not an insurance problem. The loan simply doesn’t fit the program. Insurance is not an option you can add to push it through.
Rental use blurs the classification. See the occupancy section above. The loan can be reclassified, and leverage drops with it.
The home is manufactured. The agencies apply different, lower caps to manufactured housing. If that is your home, confirm eligibility first.
Seasoning isn’t met. A loan under 12 months old, or a title under 6 months, can stop the transaction before the leverage question arises.
What Happens to Mortgage Insurance You Already Pay?
If your existing loan carries mortgage insurance and the new loan closes at or below 80% on a fresh appraisal, the new loan needs none.
Cancellation on a loan you keep works differently. The CFPB explains that you can ask to cancel when the balance is scheduled to reach 80% of the original value. This requires a good payment history, no subordinate liens and no decline in value. The servicer must end it automatically at 78%.
Those legal protections are written around single-family principal residences closed on or after July 29, 1999. A vacation-home loan may follow its own contract terms, so check your loan documents.
Can FHA or VA Loans Skip Mortgage Insurance Here?
Neither works as a vacation-home cash-out tool.
| Program | Vacation-home cash-out? | Insurance or fee |
|---|---|---|
| Conventional | Yes, to the 75% cap | None at or below 80% |
| FHA Streamline | No cash back; existing FHA loan only | FHA premiums apply |
| VA IRRRL | No cash out; existing VA loan only | 0.5% funding fee unless exempt |
An FHA Streamline requires an existing FHA loan and gives no cash back. FHA loans carry their own mortgage insurance premiums, so this is not an insurance-free route. For a property that has become a secondary residence, the agency guidance has historically allowed a streamline only without an appraisal. Check the current FHA handbook for how that applies today.
A VA IRRRL is a VA-to-VA loan with no cash out. The borrower certifies prior occupancy. VA loans use a funding fee in place of monthly mortgage insurance. A VA cash-out generally ties back to occupancy as a primary residence, so it is a poor fit for a vacation home.
A Worked Example
Picture a vacation home with a first mortgage at about 50% of its appraised value. The owner wants cash and asks for a new loan at 80%.
That request fails. It exceeds the 75% second-home cash-out cap. The lender cannot write it as a second-home cash-out.
Now trim the request to 75%. The loan fits the cap and sits below 80%, so no mortgage insurance is added. The tradeoff is real, though. The owner gets 5 percentage points of value less cash than the original ask.
Now suppose the appraisal comes in lower than expected. The same loan amount may now exceed 75% of value. The owner either takes less cash or pays down the balance to get under the cap.
This is an illustration of the mechanics and not a promise of any outcome.
What If You’re Over the Line?
You have four practical choices.
1. Take less cash. This is the simplest fix. A smaller cash-out keeps the loan under the cap and avoids insurance.
2. Pay down other liens. Clearing a second lien on the vacation home can bring the combined total under the cap.
3. Use a different structure. A home equity line or second loan sits outside the new first mortgage. It has its own terms, and the combined total can still count against the cap.
4. Pull equity from your primary home instead. The 80% cap on a primary residence reaches further. For that loan, the wholesale no-insurance lane at 80% may apply, subject to its credit, ratio and seasoning rules.
Lender-paid mortgage insurance is another route some borrowers look at on loans above 80%. It folds the cost into the loan instead of a monthly charge. That is a different transaction from a second-home cash-out, so it is worth asking about only if your loan type allows it.
When you compare, the question is not just whether insurance applies. It is how much cash you need versus what the added cost buys you. If a lower cash-out solves your goal, that is often the cleaner path. If you need the full amount, a different source of equity may fit better. Lendmire’s article Do You Pay Mortgage Insurance on a Cash-Out Refinance? walks through that comparison.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Loan-to-value (LTV): The loan amount divided by the home’s appraised value, shown as a percentage.
Combined LTV (CLTV): The same ratio, but it adds any other liens on the property to the new loan.
Cash-out refinance: A new loan that pays off the old one and returns extra cash from your equity.
Limited cash-out (rate-and-term) refinance: A new loan that pays off the old mortgage and costs, with only incidental cash back.
Seasoning: The time you have held the loan or the title before a refinance qualifies.
Second home: A one-unit property you occupy part of the year, with no rental control, that the lender classifies as a second residence.
Automatic termination: The point, at 78% of original value, where the servicer must end mortgage insurance on a covered loan.
Frequently Asked Questions
Does a vacation home need mortgage insurance on a cash-out refinance?
Not at the program’s cap. A conventional second-home cash-out stops at 75%, and insurance starts above 80%. So a loan that fits the cap carries none. Insurance becomes a factor only if the transaction type changes, such as a limited cash-out refinance at higher leverage.
Can I get a cash-out refinance on a vacation home at 80%?
Generally no. The conventional cap for a second-home cash-out is 75%. The 80% cap applies to a one-unit primary residence. If you need more cash, you may do better pulling equity from the home you live in, subject to lender guidelines.
What if I rent out my vacation home part of the year?
It can still qualify as a second home if you occupy it part of the year and the rental income is not used to qualify. Management-firm control or heavy rental use can change the classification. The loan is then treated as an investment property with different leverage limits.
Will my existing mortgage insurance go away if I refinance?
Yes, it can. If the new loan closes at or below 80% on a fresh appraisal, the new loan needs no insurance. The old policy ends when the old loan is paid off. If you keep your current loan, cancellation rules apply instead, and they can differ on a second home.
Do FHA or VA loans let me skip insurance on a vacation home?
No. An FHA Streamline needs an existing FHA loan, gives no cash back and carries FHA premiums. A VA IRRRL requires an existing VA loan, offers no cash out and uses a funding fee instead of monthly insurance. Neither is a vacation-home cash-out route.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B7-1-01, Provision of Mortgage Insurance
2. Freddie Mac Guide Section 4203.1
3. Fannie Mae Selling Guide B2-1.1-01, Occupancy Types
4. Freddie Mac, Maximum LTV/TLTV/HTLTV Ratio Requirements
5. CFPB, When can I remove private mortgage insurance (PMI) from my loan?
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Cash Out Refinance Investments · Cash-Out Refinance Mortgage Insurance Rules and the No-MI Option · Should You Give Up a Low First Mortgage for a Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.