After the application of a home loan, you will receive two documents, a loan estimate, and closing disclosure. On the surface, these documents are identical but they both serve slightly different purposes. Up Next: Expenses To Expect In The First Year Of Homeownership Here is what you need to know about the differences between these […]
Understanding the Due Diligence Period
When you are helping a homebuyer purchase a home, you will come across what is known as a due diligence period in your client’s real estate contract. Also called a study period, this essential part of the real estate contract is designed to protect the interests of both the buyer and the seller.
The due diligence period helps your clients:
Find Insurance or Financing
If your clients haven’t yet found homeowners or title insurance for the home or finalized financing for the home, the due diligence period will allow them time to get everything in order. While the due diligence period is usually 17 days, it is recommended that it be up to 30 days when financing is involved so underwriters and lenders have time to process everything. Advise your clients to research financing and insurance before they enter into a real estate contract so they aren’t crunched for time.
Thoroughly Inspect the Home
A due diligence period will also let your clients have more time to order home inspections and get the necessary documents detailing the history of the home, including:
Advise your clients that thoroughly inspecting the home during this time will allow them to find issues with the home, disclosed or otherwise. Doing so will help them save a lot of time and headaches in the future.
Extend the Closing Date
If your clients need to have their Kansas City mortgage closing date extended, they can use the due diligence period to do so. However, you must remember to advise your clients that while they can use it to extend the closing date, it is ultimately up to the seller whether or not to grant the extension.
Back Out of the Deal
If your clients cannot get a home loan or there are issues with the home, they can use the due diligence period to legally back out of the deal with no consequences. Advise your clients that before they back out of the deal to make sure that all of the conditions listed in the contract are met and they discuss why they are backing out with the seller.
If they decide to back out after the due diligence period has ended, both parties will need to come to an agreement—especially when it comes to what is to be done with the earnest money the buyer gave the seller.