SterlingResidential.com | Buying & Selling Residential Properties in Texas | Houses for Rent Houston Area | Humble Atascocita Kingwood & Spring Texas Realtors | Sterling Residential®, Realtors® | Real Estate Broker: Home Buyer Due Diligence

Buyer “Due Diligence” is a technical way of saying, “Ask all the questions needed, to have the information you want, to make an informed decision about a potential home purchase.” Due diligence is preventative maintenance —- illuminating potential threats to a satisfactory home-buying experience. A methodical property examination ensures a smooth closing with no last minute surprises, or it may reveal that your potential home purchase has too many warts to bear. Either way, it’s worth every minute of time invested in the due diligence process.

Task 1: Determine your goals and expectations
Should you rent or buy a home? Are you ready for homeownership? How long will you plan to reside in your new residence? Examine your financial expectations to determine if they’re realistic in today’s market. Factor in details such as long-term investment dollars, job and income stability, available savings, and your home maintenance IQ.

Task 2: Examine your financial risk
Are you credit worthy? Your FICO score says a lot to lenders about your future financial stability. Obtain your credit reports and FICO scores early to correct any problems prior to loan application. Gather important financial data for lenders, including employment history, wage statements, tax returns, driver’s license copy and proof of SSN, and verification of any additional income to be considered for loan approval. Apply early, get “pre-approved,” and shop homes with financing strength.

Task 3: Verify your contract terms
Do you understand the purchase contract terms and conditions? Brokers will explain the contract terms and conditions, but legal questions should be directed to an attorney. Verify the legal description, the buyer’s and seller’s names, and other terms and conditions before submitting the contract to the title company. Make note of dates, deadlines, and the buyer’s contractual responsibilities stated in purchase contract.

Task 4: Take advantage of the option period
The option period gives Texas homebuyers the right to terminate the purchase contract within a negotiated number of days after an agreement is struck. Property inspections, appraisals, termite inspections, repair estimates, and property insurance shopping are all important tasks to accomplish during this time. Order inspections early to give yourself enough time to review the reports before your option period ends. Extending the option period is negotiable, and any extension should be written, signed, and dated by the seller before the option period expires.

Task 5: Examine the property’s condition
The general property inspection, survey, flood elevation determination, appraisal, and wood-destroying insect report are typical inspections ordered by buyers. Buyers are encouraged to attend the general property inspection, a valuable time to get the inspector’s first-hand opinion. Specialized environmental, mechanical, structural, electrical, or plumbing inspections may be warranted if need is indicated in the general property inspection. Although lenders may not require all of these inspections, and inspections by nature are a “snapshot” view of the property on the day of inspection, buyers need this information to determine the overall home condition and any repairs to be negotiated with the seller.

Task 6: Clear the title issues
Review the Title Commitment Report immediately upon receipt. Provide any requested buyer information, correct any errors spotted, and resolve any unanswered questions. Verify your name(s) and the legal description. The Title Commitment includes important title insurance statements including Schedule A information, the Schedule C matters for buyer to address before closing, the policy “Exceptions,” and the policy “Exclusions, Conditions, and Stipulations.” If you’re buying a property directly from the owner, you should perform a title record examination of your own to identify any liens or encumbrances clouding the seller’s ownership rights — Texas residents can review deed records previously filed in the County Clerk’s office. Buyers with special concerns on how to title their deed should consult with an attorney.

Task 7: What’s the market value?
Texas residential properties are most widely valued by the market approach, which values real property from a sales point of view based upon what similar buyers are paying for recently-sold similar properties, or “comparables.” Buyers should obtain a copy of the completed lender appraisal to know the market value of the home they are purchasing. Buyers can order an independent appraisal during the option period if there is no purchase contract financing contingency.

Task 8: Survey your property
The purchase contract will determine who provides and pays the cost of the survey, and the time frames for furnishing or objecting to items disclosed in the survey. Lenders may accept previous surveys provided by the homeseller, but surveys can contain errors — making it prudent to pay for a new one. Buyers should review the survey immediately upon receipt and resolve any questions or discrepancies early. A flood elevation may be ordered by the lender to determine if federally-mandated flood insurance is required.

Task 9: Verify property tax rates and payments
Real property taxes are the primary source of local Texas government revenues, affecting home affordability. Tax rates are set by taxing entities, which include Counties, School Districts (ISD), Cities, Utility Districts (UD), Public Utility Districts (PUD), and Municipal Utility Districts (MUD). County Appraisal Districts assign annual property tax valuations for each property, and examine homeowner valuation protests. Only the property owner, or their appointed agent, may protest a property’s value. Buyers should determine the tax burden they will accept with the home purchase. Title companies order tax certificates to verify tax payments are current and no tax liens exist.

Task 10: Read your Homeowners Association documents
Houston is the largest U.S. city without zoning laws to direct its growth. Homeowners, therefore, rely on the organization of community neighborhood associations to set property owner standards and enhance the property values for all homes in the neighborhood. These associations, commonly called “HOAs,” establish and enforce the Association’s Bylaws and the Homeowners’ Deed Restrictions. Buyers should review the rules and ask questions to determine how the rules and restrictions effect the Buyer’s intended use of the residential property and ensure that their potential property is in compliance with the existing deed restrictions prior to closing.

Task 11: Shop early for homeowner insurance
Buyers want to price liability insurance, flood insurance, and Wind/Hail coverage (if applicable to the property). Determine early whether the potential property is insurable. Verify whether your insurance will provide “replacement cost” coverage or “depreciated cost” coverage, and the effect those different coverages will pay you on claims. Review the insurance coverage limits to decide if additional coverage will be needed for liability, medical, personal property, jewelry, or other specialty items. Start shopping early and take advantage of the option period.

Task 12: Make your arrangements to transfer utility service
Buyer due diligence for utilities is simply being prepared with a master contact list of the various service providers your new home will need upon move in. The Seller’s Disclosure form and the neighborhood HOA are good places to begin a list of the services available, such as electric, gas, water, sewer, trash, telephone, cable TV, satellite, broadband internet and lawn care. Coordinate the transfer with the seller, and have necessary services ready to turn on, or transfer, effective on closing day.

Task 13: Schedule your buyer’s walkthrough
Home buyers should schedule a walkthrough inspection just prior to the closing appointment to verifiy that the sellers have complied with the contract terms and haven’t left you with any damages or leftover personal property to deal with. If the sellers are leasing the property after closing, the temporary lease document will state the sellers’s (now, the tenant’s) responsibilities regarding the property’s condition when they move out. Seller repairs should be completed before the walkthrough, regardless of the terms of possession — verfiy the sellers’ repairs during the walkthrough.

Task 13: Review your settlement statement and loan documents
The HUD-1 Uniform Settlement Statement is the closing document itemizing all monies changing hands among the parties as a result of the real property transaction. Obtain a blank copy of the HUD-1 early in the contract process for familiarity. The HUD-1 should be available before the closing meeting at the buyer’s request. The lender’s cooperation is essential to avoid last minute closing problems. The lender fees and expenses listed on the HUD-1 should match closely with the “Good Faith Estimate” provided by the lender during the application process. Examine the loan documents for accuracy, particularly the buyer’s names and personal information on loan and title documents.

Task 14: After the loan closes
After the loan closes, Buyers should tie up any loose ends before filing away those closing papers.

Post-closing follow up tasks

• Utilities – complete setup of any accounts or schedule service visits to the home.
• Property Insurance – ensure that all insurance coverage is in good standing.
• Title Insurance – review the final title policy for completeness and file with important home papers.
• HOA Deed Restrictions – keep a file handy to review when questions about the rules come up.
• New Home Warranties – review your warranties, and note warranty ending dates.
• Property Taxes – apply for your new homestead exemption with the County Appraisal District.
• Inspection Repairs – follow up with any remaining Buyer repairs you deferred until after closing.