PMI on a second home: 10% down means MI, and HPA cancellation rights are narrower

With 10% down a second home carries PMI at 25% coverage and higher occupancy pricing, but the HPA’s cancellation and automatic-termination rights cover principal residences only; on a second home, cancellation follows the investor’s policy and the servicer’s terms.

What the statute actually covers

The Homeowners Protection Act defines a residential mortgage transaction as the purchase, initial construction or refinance of a single-family dwelling that is the borrower’s principal residence. A condo is a single-family dwelling for this purpose, so a unit you live in gets the full set of rights: borrower-requested cancellation once the balance reaches 80% of the original value (with a good payment history, no junior liens and, at the servicer’s option, evidence the value has not fallen), automatic termination at 78% on the amortization schedule if you are current, final termination at the loan’s midpoint, and the initial and annual disclosures that spell out those dates. A vacation home does not get them by law.

Second homes: investor policy instead of the statute

With 10% down on a second home you will pay PMI, and the premium is higher than on a primary residence because insurers price occupancy; standard coverage at 90% loan-to-value is 25% of the loan amount. Cancellation then depends on who owns the loan. Fannie Mae and Freddie Mac servicing guides generally extend borrower-initiated termination to second homes with thresholds similar to the statute, and allow a current-value route — commonly 75% loan-to-value after two years of seasoning or 80% after five — subject to an appraisal you pay for. A portfolio lender is bound only by the note and the MI policy. Lender-paid mortgage insurance, sometimes offered to flatten the second-home LLPA, cannot be cancelled at all; it ends when the loan does. Get the cancellation terms in writing before closing, because the HPA will not supply them later.

Condo-specific wrinkles

Mortgage insurers run their own project eligibility, and several decline non-warrantable condos or restrict attached units in specific markets; a project that passes the lender’s review can still fail the insurer’s, which surfaces late. HOA dues do not affect the premium, but the unit’s value does: a cancellation appraisal on a condo reflects the project’s condition, and a building with a deferred-maintenance assessment pending may appraise below what the sales comps suggest, delaying the 80% threshold. Where the master policy or reserve study has changed since purchase, ask the servicer which valuation method it accepts before ordering an appraisal.

Reaching 80% sooner on purpose

The agencies apply the automatic-termination mechanics to second homes under their own guides, so a borrower who is current should see PMI drop at 78% of the original value without asking; the request route at 80% based on payments remains the faster path. Extra principal payments count toward the original-value test. Check the PMI removal guide for the request letter and the documentation servicers typically want.

What to check

• Ask in writing, before closing, what the servicer’s PMI cancellation terms are on a second home — the statute does not guarantee them.
• Avoid lender-paid MI on a vacation home unless you intend to keep the loan for its full life; it never cancels.
• Confirm the mortgage insurer has approved the condo project, not just the lender.
• Track the original-value schedule yourself and request cancellation at 80%, then verify automatic termination at 78%.

Frequently asked questions

Does the automatic PMI termination at 78% apply to my second home?

Not by statute: the Homeowners Protection Act covers principal residences only. In practice Fannie Mae and Freddie Mac require servicers to apply similar termination rules to second homes under their guides, and many portfolio lenders follow suit, but the terms come from the investor and the note rather than federal law. Ask the servicer to confirm in writing.

Is PMI more expensive on a second-home condo?

Generally yes. Insurers add an occupancy adjustment for second homes, and at 90% loan-to-value the required coverage is 25% of the loan, which costs more than the 12% coverage required at 85%. Some insurers also price attached condos differently in certain states. Putting 15% down instead of 10% reduces both the coverage level and the premium.

The rule in full: Homeowners Protection Act (PMI cancellation). The borrower profile: Condo and second-home buyers. Related guides: Conventional loans for condos and second homes: the extra rules · PMI removal: the 80% request, the 78% automatic cancellation, and the appraisal route · PMI removal: the 80% request, the 78% automatic cancellation, and the appraisal route · PMI for first-time buyers: what it costs and how to get rid of it.

Other federal rules for condo and second-home buyers

TILA / Reg Z · RESPA · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HOEPA · Servicing rules · FCRA · Flood insurance · MARS rule · SCRA · LO compensation

HPA / PMI for other borrowers

First-time buyers · Conventional borrowers · Veterans · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Heroes · Rural buyers · Refinancing