Here’s What You Need to Know About the Real Estate Due Diligence Process
Buying a home is one of the biggest, most important transactions of your life. Most people take between 15 to 30 years to pay off the mortgages on their home, making this decision not only of high importance but high risk as well. With that in mind, you may have heard the term “due diligence” thrown around before. In layman’s terms, you can think of due diligence as “doing your homework.” The due diligence time frame allows the buyer to thoroughly examine the property before they commit to a decision. However, the due diligence process can be confusing and time-confusing for first-buyers. To help guide you, here are a few things you need to know:
Shop for Properties
In order for you to make an informed decision, it’s important for you to shop around and gain a better understanding of what’s happening in the marketplace. Many first time buyers make the mistake of locking their eyes on a dream property and not shopping around for other viable options. Taking your time to look at many different properties in different areas allows you to make an educated, unhurried decision, and this is an important part of your own due diligence.
Get an Inspection
An inspection is necessary for any real estate transaction. Normally, you might be able to participate in the inspection process, but because of efforts to stop the spread of COVID-19, this has become increasingly difficult. However, either way, it’s important that you go over the inspection report in thorough detail. Analyze your inspector’s remarks on the work that you’ll need to do on the property. Then dig a little deeper and see how much those repairs would cost to make. In some cases, an inspection report can easily discourage you, but it also provides a great foundation for negotiating costs with the seller.
Shop for Mortgages
In the same manner that you’d shop around for different properties, you also need to shop around for different mortgages. Although it can be time-consuming and involve a lot of back and forth paperwork, it’s well worth it in the end. You wouldn’t only apply to one job—so when it comes to finding a mortgage situation that’s best for you, secure multiple bids on your financing.
According to Freddie Mac, borrowers who get five rate quotes save nearly $3,000 on average. Although it may not seem like a lot over the course of a 15-year or 30-year marriage, it can make all the difference to families who are struggling with closing costs. If you don’t want to deal with the legwork, you can always hire a mortgage broker to get the best interest rates and payments for you.
Check for Insurance Eligibility
Before you commit to anything, it’s important to have a thorough understanding of the property’s insurance eligibility. There are some properties that may not be able to qualify for insurance; for example, homes in natural hazard zones may not be eligible for insurance, or it is, it could be very expensive. Depending on your needs, a reliable, cost-effective insurance policy may be high on your to-do list.
Review HOA Documents
Homeowners Association is an organization that creates and enforces rules for single-family homes in planned communities and multiple-unit homes like condominiums and townhomes.
The HOA documents reveal plenty about the shape of a community. Once you purchase a property with an HOA, you will pay fees and abide by the HOA rules. When you review the documents, pay close attention to what your fees and dues are going towards, like trash removal or landscaping.
It’s also important to review these documents because you’re expected to adhere to their requirements, and some HOA requirements are much more strict than others. For example, you might not be able to paint your home a particular color or make modifications that you’d like. However, once you purchase a property, you are committed to that HOA until you move, which means you need to ask as many questions as possible. Ask about costs, how often the rates go up, and what the terms are.