In layman’s terms, due diligence amounts to doing your homework \u2014 about your mortgage loan<\/a>, about the neighborhood, and about the house. Specifically, it refers to a period of time outlined in the purchase agreement<\/a> during which you have the opportunity to learn everything you can about the house\u2026 and to back out of the deal if you learn it isn\u2019t right for you.<\/p>\n Sometimes the \u201cdue diligence period\u201d is a specific number of days, and sometimes it lasts until closing<\/a>, depending on the state where you are buying and what\u2019s in the purchase agreement. No matter how long you have to do your due diligence, there are steps you should take during each part of the homebuying process to make sure you\u2019re buying a house without any hidden issues.<\/p>\n Due diligence starts at the very beginning of the homebuying process, before you even start looking at property. Here\u2019s how to do your due diligence before you make an offer on a home<\/a>.<\/p>\n Once you\u2019ve decided to begin shopping for a home, you\u2019ll likely start looking for a real estate agent<\/a>. Whether you realize it or not, the agent you choose is the first due diligence decision you make.<\/p>\n \u201cThe first step is the due diligence of the agent,\u201d says Jeffery Sweet<\/a>, a real estate agent in Nampa, Idaho<\/a>, who is an expert in selling single-family homes.<\/p>\n \u201cA lot of people don\u2019t realize that the agent you choose is going to be a large determining factor in whether you get the home you love or if you get it for the price and terms you want.\u201d<\/p><\/blockquote>\n In addition to hiring a real estate agent, you\u2019ll also want to do your research and see if you need to hire a real estate attorney<\/a>. Most states do not require real estate attorneys to purchase a house, though a few states do. Your agent should know if your state is one of the few that requires the use of a real estate attorney.<\/p>\n Before you purchase a home, you want to have a firm understanding of the real estate market. Will you be buying during a seller\u2019s market or a buyer\u2019s market? Understanding the market will help you determine how much you might have to spend to get into your desired neighborhood. You don\u2019t want to overpay for your house, of course, but you also want to make a competitive offer out of the gate so that your offer is considered.<\/p>\n To educate yourself about the market, spend some time looking at homes that are for sale and<\/i> homes that have recently sold. Pay attention to the list-to-sales-price ratio so you get a sense of whether other buyers are paying more or less than asking price.<\/p>\n Based on what you learn, talk to your agent about where you should focus your search in order to fit your budget. \u201cLook at your whole life,\u201d advises Sweet, in order to determine what you can truly afford.<\/p>\n Sweet says that before you even look at houses, it\u2019s important to determine the area of town where you want to buy. \u201cEspecially in my area, we are getting a lot of people from out of state, so they\u2019re not as familiar with where the shopping and entertainment are,\u201d says Sweet. \u201cYou should know the area a bit. If the prices are the same in two neighborhoods but you\u2019ll shave 15 minutes off your commute, that could really be a determining factor in the home you choose.\u201d<\/p>\n Once you\u2019ve narrowed down the neighborhoods where you might want to live, do some digging to see if you can find out about development and infrastructure projects planned for the area in the future. You might notice that one neighborhood\u2019s master plan calls for light rail expansion or greenway additions, both of which will likely raise property values.<\/p>\n It\u2019s also wise to see if the school system is good and what the crime rates are like. Check to see if there are sex offenders living in the area. Is the neighborhood in a FEMA flood zone<\/a>? Are housing prices going up, or have they not increased as much as surrounding areas? The more information you can gather about your prospective neighborhoods, the better.<\/p>\n Now that you\u2019ve found an agent, have a good understanding of the real estate market, and have narrowed down the neighborhood where you\u2019d like to buy, it\u2019s time to shop for a mortgage loan<\/a>.<\/p>\n Sweet says that you need to do your due diligence in choosing a lender. To find a lender, many homebuyers use a mortgage broker<\/a>, who acts as a middleman between you and multiple lenders to help you find the competitive mortgage terms and interest rates<\/a>. A retail loan officer, by contrast, works for one specific lender and can offer you different loan terms from that one lender.<\/p>\n Different lenders will offer you different rates, so it\u2019s important to shop several loans to get the very best deal.<\/p>\n No matter which lender you choose, Sweet advises that you should \u201calways go local.\u201d The reason, explains Sweet, is that local lenders understand the local lending programs and loan types that out-of-town lenders might not know about. \u201cLocal lenders have more flexibility because they know the market,\u201d he says.<\/p>\n Sweet also recommends that buyers talk to at least two lenders before choosing one they\u2019ll work with.<\/p>\n \u201cI want lenders to compete for my business,\u201d he says. \u201cI want to know they are going to provide great service and put their best foot forward.\u201d<\/p>\n Ask each lender to provide you with a Loan Estimate<\/a>, which you should compare. \u201cAny lender should be able to put together a mock statement,\u201d says Sweet. He recommends looking at the interest rate, monthly payment, and upfront charges \u2014 some lenders have loan origination fees<\/a>, for example, while others don\u2019t \u2014 and choosing the lender that offers the best terms.<\/p>\n You will need homeowners insurance; and there are several different types<\/a>. While securing homeowners insurance isn\u2019t something that you\u2019ll do until closing, investigating prices before<\/i> you make an offer can really help. The last thing you\u2019d want is to find out that the house of your dreams isn\u2019t insurable or that insurance for the home will be astronomical<\/a> for some unforeseen reason.<\/p>\n Sweet says that having the right agent will go a long way towards ensuring that you don\u2019t get caught off guard when it comes to insuring your home. \u201cIf you get the right agent, they are going to do their due diligence ahead of time,\u201d he says. For example, if the home you are interested in buying is going to require flood insurance, a good agent will know that ahead of time. The good news, says Sweet, is that \u201cgetting insurance quotes is relatively easy.\u201d<\/p>\n Regardless, you want to know upfront if the home you are interested in requires supplemental insurance. Is the home in an earthquake or wildfire hazard area? Does the home have a pool and, if so, will you be required to carry additional liability coverage? Make sure you\u2019re clear on the insurance you\u2019ll need to acquire and how much that insurance will cost you.<\/p>\n The final step in doing your pre-closing due diligence is to make an offer on the home. You\u2019ll want your offer to be in line with the market, and your agent should help you land on a good number.<\/p>\n Now that you have the home under contract, it\u2019s time to get a home inspection<\/a>. The seller is supposed to disclose any known issues with the house, but getting an inspection is a good practice regardless.<\/p>\n Sweet says that he always recommends getting the home inspected, even if it\u2019s new construction, and that the inspector you hire should be \u201clicensed, insured, and bonded.\u201d<\/p>\n He also points out that buyers often overlook re-inspections \u2014 that is, making sure the inspector goes back out to the property to ensure the homeowner made all the agreed upon repairs. \u201cIf you are having the HVAC cleaned and there are receipts, you don\u2019t need to re-inspect that,\u201d explains Sweet. \u201cBut for the major repairs that the homeowner is supposed to have done, you need to make sure that the inspector goes back and confirms that the repairs were completed in the manner that they should be.\u201d<\/p>\n A basic home inspection looks at the home\u2019s structures and systems, but you might want to go deeper and order other inspections<\/a>. Here are some additional inspections you may want to consider:<\/p>\n Sweet says that the inspections required at each property are different. \u201cThat\u2019s something buyers should consult with their agent on,\u201d he says.<\/p>\n In addition to the inspections listed above, anyone purchasing a manufactured home should obtain an engineering certification<\/a>. \u201cThat\u2019s where the foundation of the manufactured home is inspected to ensure it is up to the quality it needs to be,\u201d explains Sweet.<\/p>\n If you are getting a mortgage loan to purchase your home, an appraisal<\/a> will be required so that the bank is assured they aren\u2019t loaning you more money than the home is worth. Even if you are buying a house in cash, it\u2019s good common sense to obtain an appraisal so that you can make sure you aren\u2019t spending more than the home is worth.<\/p>\n If the appraisal comes in lower than the offer you\u2019ve put in on the house, you\u2019ll have an opportunity to renegotiate, so long as your home sale contract included an appraisal contingency.<\/p>\n Land surveys<\/a> document the parameters of the property you are buying and outline any easements on the land.<\/p>\n Sweet points out that land surveys aren\u2019t always necessary. In subdivisions, for example, Sweet says that property lines are usually marked and clear. At more rural properties, however, it\u2019s not always clear where the property lines are. \u201cIn that case, I\u2019d have a surveyor tag the property line,\u201d says Sweet. \u201cThere may also be cases where the property needs to be resurveyed.\u201d<\/p>\n Title insurance<\/a> protects the buyer if the title search missed something, such as a lien on the home, that is discovered later. Without title insurance, you\u2019re responsible for cleaning up the mess on your own.<\/p>\n In Idaho, where Sweet works, the seller typically provides the lender\u2019s title insurance. \u201cFor the buyers, I recommend the extended policy,\u201d says Sweet. \u201cIt covers certain things after you close \u2014 like, for example, if there are encroachment issues.\u201d<\/p>\n Extended title insurance is inexpensive and \u201cwell worth it,\u201d says Sweet. \u201cIt protects the buyer after the closing of the sale to ensure they are going to have no other encumbrances that are found after the fact.\u201d<\/p>\n You\u2019ll want to have your real estate agent ask the seller if the home\u2019s systems and major appliances are under warranty. If they aren\u2019t, you can ask the seller to provide a warranty \u2014 this is something you might seriously want to consider if the home inspection turns up that the systems or appliances in the home are aging.<\/p>\n Make sure to ask if there is a homeowners association<\/a> (HOA) in the neighborhood. If there is, you\u2019ll need to understand the HOA fee \u2014 which may be significant \u2014 and the covenants, conditions and restrictions (CC&Rs).<\/p>\n Review the CC&Rs in great depth, as there may be rules lurking inside that will rule out the house for you. For example, if your kids are set on having a pool or you need a fence for your dog, make sure that the CC&Rs don\u2019t forbid such things.<\/p>\n![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2020\/06\/due-diligence-real-estate-computer-666x381.png\")
<\/a>Due diligence before the contract<\/h2>\n
Hire the right help<\/h3>\n
Educate yourself about the market<\/h3>\n
Educate yourself about the neighborhood<\/h3>\n
Shop around for your mortgage loan<\/h3>\n
Insuring the house<\/h3>\n
Make an offer that makes sense<\/h3>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2020\/06\/due-diligence-real-estate-bathroom-666x381.png\")
<\/a>Due diligence during closing<\/h2>\n
Get an inspection<\/h3>\n
\u2026 In fact, get more than one inspection<\/h3>\n
\n
Get an appraisal<\/h3>\n
Review the land survey<\/h3>\n
Get title insurance<\/h3>\n
Ask about warranties<\/h3>\n
Is there an HOA?<\/h3>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2020\/06\/due-diligence-real-estate-toolbox-666x381.png\")
<\/a>Due diligence after you close<\/h2>\n
Have a homeownership plan<\/h3>\n