How to refinance your second home: 2022 rates and cash-out rules

Tim Lucas
Tim Lucas
The Mortgage Reports Editor
October 21, 2021 - 9 min read

Low rates, easier terms for second home refinances

Recent low rates and reasonable home prices have prompted record second home sales.

Now, owners are seeking to refinance a second home to lower their rate, eliminate mortgage insurance, shorten their loan term, or get cash out.

That could be a great idea.

Home values have soared, including those for second homes, around the country. Mortgage rates have remained low.

That’s making it easier for second homeowners to get qualified for a second home refinance.

Guidelines are reasonable, and lenders are eager for refinance business.

2022 will remain a great time to get a new loan for your vacation property.


In this article (Skip to...)


How to verify that you’re eligible for a second home refinance

If you’ve refinanced your primary residence, you’ll notice that refinancing a vacation home or second home requires a slightly different process.

For one, there will have to be reasonable evidence that the second home is not a rental property. Here is how Fannie Mae and, therefore, other mortgage lenders will verify the second home status:

  • The home is occupied by the borrower some portion of the year
  • It’s a one-unit dwelling (not a duplex, triplex, or fourplex)
  • The home is suitable for year-round use
  • The applicant fully owns the property, i.e. it’s not co-owned with another party
  • No rental or timeshare arrangements. (However, see below on rental income on second homes)
  • There are no management companies or “booking agencies” arranging occupancy

It also helps if the home is in a recreational area: on a lake, near mountains, or in a smaller town. What they don’t want to see is a “second home” three blocks down from your primary residence. There would be no reason to vacation there.

Fannie Mae views second homes as “lower risk” than real estate investments or rental properties. So, they grant better rates for true vacation homes.

Am I still eligible to refinance as a second home when I earn some rental income on my vacation house?

The rise of Airbnb has many second homeowners wondering if they can still refinance their property.

Fortunately, Fannie Mae allows short-term rental income for second homes reported on tax returns. The following is from Fannie Mae’s rulebook:

As long as rental income from the property is not used to qualify and the borrower continues to occupy the property as their second home, it is not considered “rental property” and the loan is eligible as a second home.

The home, of course, must meet other second home refinance requirements, as stated above, to be eligible.

Second home refinance rates

Don’t expect to pay much higher mortgage rates for second-home refinance loans.

Some borrowers worry that rates for refinancing a second home will be much higher than the rates for their primary home mortgage. However, Fannie Mae’s loan-level price adjustment guidelines say that second home mortgages should be given the same rates as primary mortgages.

Lenders may hike rates and fees a little for second homes, especially if you are requesting some types of private mortgage insurance. But fees should be small in most circumstances.

Second home refinance loan-to-value limits

Second home refinance guidelines vary from primary residence requirements when it comes to loan-to-value (LTV) maximums.

Lenders will limit loan-to-value ratios, meaning you’ll need more equity in the home to refinance, especially if you’re getting cash out.

Here are the current LTV maximums to refinance a conventional mortgage on a second home for both Fannie Mae and Freddie Mac:

  • No-cash-out refinance: 90% maximum LTV
  • Cash-out refinance: 75% maximum LTV

Cash-out refinance on your second home

Cash-out refinancing has gained popularity in recent years. Property values have more than doubled in some areas of the country. Owners of second homes are sitting on a mountain of cash.

The good news is that lenders allow you to pull second home equity out in the form of cash.

It works just like a primary residence cash-out mortgage. You open a mortgage with a bigger balance than what you owe. The difference, less closing costs, is forwarded to you as a lump sum at loan closing.

For instance, you own a second home currently worth $250,000.

  • Current loan balance plus closing costs for new loan: $150,000
  • New loan: $187,500 (75% of value)
  • Cash to borrower at closing: $37,500

You can use the cash for any purpose. You can make improvements to the property, buy a rental home, or consolidate debt. It’s just like using a standard cash-out loan.

Rates will be higher than getting a no-cash refinance. For instance, an applicant with a 720 credit score will pay about 1% of the loan amount in fees, compared to an applicant requesting a no-cash-out refi. This translates to about a 0.125% to 0.25% higher rate.

So, consider your current rate and make sure your new mortgage rate is similar-to-lower.

In today’s low-rate environment, many second-home cash-out refinance applicants can actually drop their rate and get cash at the same time.

Also, keep in mind that cash-out loans, in general, are reserved for high-credit applicants, and this applies even more so for second homes. If your credit is low, expect to have a hard time qualifying. You might consider raising your credit score before applying.

Credit score minimums to refinance a second home

You’ll need a good or great credit score to refinance a second home.

Lenders view vacation residences as a slightly higher risk than a primary residence. Homeowners are likely to pay their primary home mortgage before their secondary residence loan.

Fannie Mae doesn’t set a specific credit score minimum for second homes above its 620 minimum for all loans. But lenders may require a score of 680-700 for a second home conventional refinance or 720+ for cash-out financing.

Vacation home “cash reserves”

Lenders will want to see that you have enough money in the bank to cover vacation home payments if you hit financial hardship.

Generally, expect to show at least two months of full payments for principal, interest, taxes, insurance, and HOA dues for the second home.

In addition to that amount, lenders will require you to prove assets on other financed properties besides your primary residence.

  • 2% of the unpaid principal balance of other non-primary homes if you own 1-4 financed properties
  • 4% of the unpaid principal balance of other non-primary homes if you own 5-6 financed properties
  • 6% of the unpaid principal balance of other non-primary homes if you own 7-10 financed properties

As an example, a homeowner with a second home with a $800-per-month payment and no other properties besides their primary home will need to verify at least $1,600 in the bank.

The same homeowner with two investment properties with $200,000 in mortgages would need to verify an additional $4,000.

Refinancing a second home FAQs

How do you refinance a second home?

Borrowers will need good to excellent credit scores to refinance a second home, as mortgage lenders often have more rigorous requirements that can result in higher interest rates. However, refinancing a vacation home, second home or investment property is a common scenario for both home buyers and real estate investors alike. As long as you have enough equity in your property, refinancing a second home is an option.

Can I refinance my mortgage to buy a second home?

Yes, home buyers can leverage the equity in their current homes to buy a second home. Some people do a cash-out refinance on their first mortgage and apply the funds to make a down payment on a second home. You can also use the equity in your current mortgage by taking out a home equity loan or a home equity line of credit (HELOC).

Can you refinance a home that is not your primary residence?

Yes, home buyers can refinance a second home that is not their primary residence. While the process is essentially the same as a primary home refi, mortgage lenders may require higher credit scores or charge higher interest rates on a second home refinance.

How do second home mortgage rates compare to other mortgage rates?

It’s not uncommon for a mortgage lender to apply higher interest rates to a second home refinance than it would for a primary mortgage. But rates on will vary, so it’s important to shop around.

Does refinancing a second home affect my credit score?

Borrowers generally see their credit scores dip when they take on new debt, but because refinancing replaces an existing mortgage loan with another of a similar amount, the impact to credit scores are often negligible.

How many times can you refinance a second home?

While there is technically no legal limit to how many times you can refinance a vacation home, lenders may set rules that restrict the frequency of refinancing depending on the type of loan. There are times when homeowners may want to refinance a second home more than once, especially if they can get lower interest rates or eliminate mortgage insurance. On the other hand, multiple second home refinances also mean additional closing costs, and some lenders may charge borrowers prepayment penalties.

What are the drawbacks of refinancing to purchase a second home?

Home buyers who are thinking of refinancing a second home to purchase a vacation home or other real estate investments should keep in mind disadvantages, including high closing costs, leveraging your primary home as collateral to secure a loan, and potentially higher mortgage payments.

What are today’s second home refinance rates for July 5, 2022?

Mortgage rates are low for all mortgages at the moment, and second home mortgage rates are no exception.

Get a personalized quote for your second home refinance, and see how much you can save monthly on your vacation residence. Cash-out and no-cash-out quotes are readily available and can be completed in minutes.


Popular Articles

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.