Cash out refi on duplex?

Question

Hi everyone! This is my first post here :) thank you in advance for your patience!

First a little background: My husband (who is a full time firefighter) and myself live in St. Petersburg, Fl. I have three small kids and am currently at home until they are in school full time.

We own a duplex. Both sides are rented. We owe 179,000 on the mortgage, but we believe the value is close to 275,000. We also own our own home, that we JUST bought. We owe 275,000 and the value is around 300,000-310,000.

The trouble is...we are about 30,000 in the hole with unsecured debt (credit cards). These are stupid mistakes we made years ago that we cannot shake off because the interest rates are so high. We pay out close to $1000 in debt payments every month while barely moving the needle. If it weren’t for that, we would be doing so well! We only pay around 900 for our mortgage on our home thanks to the duplex income. My husband has loved being a property owner and has dreams of buying more properties but we cannot do anything because of this stupid debt weighing us down. Most of the debt is in my name (save one card with a $7500 balance that is in his name). All the properties were purchased using his income and credit only.

I began looking at options and thought maybe we could do a cash out refi of the duplex...but then read that we could only do 70 LTV because it is 2 units. Does that sound right? That wouldn't help much. It would only be $10,000 we could squeeze out BEGORE paying closing costs 🤔. Is that right?

If so, does anyone have any advice on another way we can tap into this equity? We would love to much to start investing correctly and put this debt behind us. Of course we are trying to chip away at it. I do as much as I can from home through various small businesses, but we just cannot move the needle.

I’d love to hear what you would do in this situation! I need to hear some creative solutions. If we could free up $1000 a month that would change our lives! And it would certainly head us in the right direction.

Thanks for entertaining a newbie!

Ola Dantis · Answer

@Ashley Sanchez I think you may be able to find a lender who can go up to 75% LTV. Let's this analyze together: If you get an appraised value for the duplex: $275,00075% of that: $206,250Balance left on your mortgage: $179,000Potential cash to be taken: $27,250 (excluding REFI closing costs). You might be able to even keep the monthly mortgage payments the same on the duplex. Hope this helps. Goodluck. Thanks! - Ola

Peter U. · Answer

I'm curious what kind of down payment you put on the new home that might have been able to cancel out some of this debt? Did you by chance move out of the duplex into the new home? If so, maybe consider selling the duplex tax free and taking the almost 100k equity to pay off the debt and find another rental. It'd be hard to sell a fully rented duplex, especially since it sounds like it cash flows nicely. But if you're going to be weighed down by the credit card debt and strapped anyway, you might come out ahead in the end.

Stephanie P. · Answer

Ola,I had to think this solution through going a few steps deeper than "there are lots of 75% cash out solutions". Here's the issue; on a business purpose loan, the cash out is supposed to be for business purposes; not to payoff personal debt. In this borrower's case, the debt is personal and mixing business purpose and personal is a big no no.Maybe a local credit union would be a good solutionStephanie

Jose Matuk · Answer

+1 on consolidating your high interest debt into the lowest interest loan you can get (cc promotional balance transfer with 0%, or another loan with less than your cc’s). However, and please don’t take this as a lecture, the key is that you don’t accumulate more debt when those cc are free of balance. Then you can pay off faster and be debt free to start investing. Two very helpful books you might want to read about this: 1. Richest man in Babylon which has a good section on how to get out of debt. 2. Complete money makeover by Dave Ramsay, which is like getting a spanking, but helps you tremendously. You can do this. Best regards!

Andrew Baker · Answer

Hi Ashley, Yeah that is pretty much accurate. Like Chris said, up to 75% LTV is surely possible, and I think you may even be able to find 80%. I think you are probably right and I am a little confused on the 10k you came up with though, if you end up having the property appraised for 275k, then would you not be able to pull out upwards of 75k?Best,

Ashley Sanchez · Answer

thank you! We’ve actually both taken and lead the Dave Ramsay course several times! We love it. And we hate debt now! Unfortunately this is debt that was accumulated many years ago, and we just aren’t able to make a difference on it. The interest payments are just too high. We can hardly even chip away. I do what I can to bring in income and anything I make goes towards it. Unfortunately and sadly my husbands salary as a firefighter isn’t a whole lot, even with overtime. We don’t have a behavior problem. No car loans, we own both. No further debt accumulation. We HAD a behavior problem, lol. But we just can’t seem to clean it up! It sucks.

Mark Hughes · Answer

I would look at a line of credit against your home to then pay off the credit card debt. Also, do you have options to reduce any expenses to help put more into paying down the cards?

Michaela G. · Answer

Maybe you can approach your bank and see if they give you an unsecured loan to pay off those credit cards? That would bring down the interest and you could chip away on it much quicker. Maybe apply for some new cards and roll the old debt over onto new cards. There are always some that offer 0% interest for the first year. It would give you a year to pay off a chunk, before the rates go up again.

Ashley Sanchez · Answer

well we still owe 179. So I thought you could only borrow the difference, correct?

Chris Ellis · Answer

You are pretty accurate in your statements. It may be possible however to find a group willing to do up to 75% LTV. Perhaps there is someone willing to take a second position for the excess. It is not the easiest thing to hunt down but I'd be happy to help and would free up a little more cash. Let's connect.