Due Diligence: What It Means For Home Buyers

The term due diligence is an old legal term that basically breaks down to mean "do your homework." For home buyers, due diligence involves taking a number of important steps between the time the offer is accepted and the closing meeting. The below list places a typical home purchase due diligence list in the order it should be accomplished.

1. Right after your offer is accepted and you've applied for your loan, make an appointment to have a home inspection performed. If expensive or extensive problems arise as a result of the inspection, it might take time to have things fixed or resolved. An earlier appointment means a faster inspection. Home inspections provide the buyer with peace of mind about the internal and often-unseen workings of the home's major systems.

2. At the same time you make the home inspection appointment, contact a professional home appraiser. If you are using a lender, an appraisal is a requirement. Even if you plan to pay cash, an appraisal is recommended. Appraisals value a home by reviewing the square footage, lot size, features, and more. As you might imagine, an appraisal has to be for more than (or at) the amount of the loan after taking into account a down payment.

3. Along with a general home inspection, you might want to have more specific inspections performed. That means inspections for wood-invasive pests, radon, asbestos, defective drywall, etc.

4. While you are doing your due diligence, your home-to-be is insured by the owner. The moment it changes hands and becomes your home, it has to be insured. You will need to show proof of homeowners insurance at the closing, so shop around and don't forget extras like flood and hurricane insurance too.

5. In many cases, you will use a title search firm to both research the history of the home and issue title insurance. Homes should come with clear titles and no signs of other owners in the picture. While title searches are thorough, title insurance provides financial payment for undisclosed and unknown issues like liens, heirs, and more.

6. Check zoning, both present and future. If you are buying a home with vacant property behind it or nearby, don't just assume it will remain that way. Zoning problems can plague homeowners and if you find out that the lovely wooded area near your home is about to become a light industrial area, you might want to reconsider your purchase.

7. Finally, all closings involve a cash outlay, and you should not be surprised about it. Buyers are often kept updated on the cash payments due at closing, and the closer to closing the more accurate they will be.

To get more help on any of the above, speak to your real estate agent.