Buying a house is a commitment and a reflection of yourself. It will determine the quality of your life for the foreseeable future and impact your finical standing for decades. As you enter the due diligence period, make sure you put your potential new home through its paces.
And if you see any red flags, run. There will be other houses. It’s probably not worth the trouble or the money to fix. Remember, when it comes time to sell your house, those same conditions that gave you pause will probably cause other potential buyers to think twice as well.
Welcome to the due diligence period. Roll up your sleeves and break out your checkbook, it’s time to get dirty and spend some more money. (This is just another reason to make sure you are working with an experienced buyer’s agent, not only will they be able to recommend competent professionals to help you through every step of the due diligence process, but they will also be negotiating with the seller regarding all of the closing costs. In an ideal situation the seller will cover the majority of these expenses.)
Once the due diligence period begins, the clock is ticking, so try to have all of your ducks in a row well in advance. That way once you sign the contract you are ready to start checking things off the list. The main things to consider during the due diligence period are the home inspection, your mortgage loan approval, and finding a closing attorney to finalize all of the legal details involved with buying a home in Charlotte.
The home inspection
One of the most important things you will need to have done is the home inspection. Your buyer’s agent will most likely have a home inspector they trust and can recommend to you. Curt Seifart recommends Norman Richards from NS Richards Property Inspections. According to Richards’ website, most home inspections take no more than four hours, and typical inspections fall within the hour-and-a-half to three-hour time frame. Richards recommends you accompany your home inspector as they go through your potential home. That way they can show you any problem items or things to be aware of. A few of the things the home inspector will be thoroughly analyzing are:
- The roof
- Plumbing and fixtures
- Heating and cooling systems
- The attic
- The interior of the home
- Electrical systems
- The exterior of the home
Your home inspector will also be able to alert you to any potential problems that could be caused by environmental hazards. The most common environmental hazards include mold, asbestos, radon contamination and wood destroying pests like termites and carpenter ants. If your property has any problems with the home inspection, the due diligence period is the time to decide if it’s worth trying to fix, or cutting bait and moving on.
You were pre-approved before you even started looking for a house, remember. Now it’s time to get real. Your lender will take all of your information and dig deep through your financial records to ensure that you can afford the mortgage for your dream home. The more accurate you are with your lender in the pre-approval process, the easier this phase of the due diligence process will be.
Chris Tilley with American Security Mortgage calls this “Getting in front of the house.”
“We try to get as much done as early as possible so we can build a financial road map and game plan for successful closings,” Tilley said.
Even if you are not currently in the market to buy a house, it’s never to early to start getting your financial situation prepared to buy a home. The two main things that tend to trip up first time home buyers in the loan approval process is their employment history and their credit history.
“People act like their credit score is a big mystery, but when you think about it, it’s pretty simple,” Tilley said.
There are three main factors that go into determining your credit score.
(1) Length of credit: How long you have had your credit cards, car payments, etc.
(2) Payment history: Whether or not you pay all of your bills on time.
(3) Credit capacity: How much you owe on your credit cards versus the maximum limit on those cards.
When it comes to credit scores, “640 is typically the cut off number, because below that number it’s difficult to get approval for credit,” Tilley said.
Tilley’s advice to first-time home buyers on how to improve their credit score is pretty simple too: Pay your bills on time.
When it comes to your employment history, your lender will be checking your pay stubs and W-2’s to verify that your income statements are in line with what you quoted. They will also be looking for red flags in your employment history such as more than three jobs in a 12-month period, whether your income is commission-based or you are self-employed. If you have your own business, there may be all types of variables that affect your income. Your lender will have to take those factors into consideration when evaluating your loan options.
Your lender is also responsible for ordering the appraisal on your house. Whereas most closing costs are negotiable, the buyer is typically responsible for paying for the appraisal and the lender collects that cost up front as soon as the appraisal is ordered. Most appraisals in the Charlotte area run about $400 and the average appraisal takes between seven to 10 days to complete.
It is important to keep all of these time frames in mind, because once the due diligence period begins you will be on the clock to get everything done. As we mentioned earlier, the due diligence period is negotiable between the buyer and the seller. But Tilley said the typical due diligence period is between two to three weeks.
That’s why it would behoove you to start the process before you “pull the trigger” on a house.
“We work closely with Curt and the other agents to give sound guidance before a contract is even written,” Tilley said. “You hear all sorts of horror stories about closings going awry and typically those challenges come from the lender not doing a solid evaluation early in the process.”
The closing attorney
The next part of the due diligence period involves enlisting the services of a closing attorney.
The closing attorney will handle a variety of the legal aspects involved with closing on a home. They will also make sure everything is copacetic regarding the title. That means that the buyer has clear claim to the property and that any loans or liens on the property are paid off.
The closing attorney coordinates with the lender to make sure everything is in line for the closing, which includes generating a settlement statement that shows every dollar that goes in and out during the home buying process.
When it comes to the price of a closing attorney, it depends on the purchase price of the property, but if your future home is under $1 million and is in Mecklenburg County, plan to spend about $1,000.
“If your lender or closing attorney asks you for pay stubs or tax returns, get that information to them as soon as possible,” said Charlotte closing attorney Matthew Doyle of Doyle and Wallace. “It’s going to be a process and it can be a stressful time.”
Basically you want to make sure you are prepared with all of your financial information easily at hand, so that when they ask, you can send it immediately. Remember that the due diligence clock is ticking this whole time, so the more you can get ready before hand the easier this time period will be.
Congratulations, if everything checks out with the home inspection, appraisal, loan approval, then the hard part is over. Get ready to close on your new home!