Due Diligence

Due diligence is one of the most important aspects of buying real estate, but it’s something a lot of first-time homebuyers and new investors aren’t familiar with. Learn more about the due diligence period and what your responsibilities are as a buyer.

The due diligence period is a specified period of time where the buyer has a chance to inspect the property before finalizing the contract. The purpose of the due diligence period is to give buyers a short period of time to discover potential problems with the property before they finalize a deal to purchase it.

The due diligence period typically runs between 30–90 days, with the length of time varying based on the complexity of the transaction. During this time, the buyer can use inspections and appraisals to learn more about the home and discover potential problems. Title searches and reviews of financial records can also help buyers get a better understanding of a property before finalizing the deal.

Due diligence is crucial when it comes to hard money loans because it allows borrowers and lenders to assess the condition of a property to make sure both parties are entering into a beneficial deal. As a borrower, you have a chance to make sure you’re working with a lender you can trust and who has experience dealing with similar real estate loans.

Lenders use the due diligence period to make sure they’re lending money to reputable borrowers. During the due diligence period, hard money lenders will make sure you exist as a borrower and that all the information you provided on your application is accurate. If everything goes smoothly, the transaction will be finalized and you can start paying off your loan.

Due diligence is a two-part process, and it’s a little different depending on whether you’re a lender or borrower. In this section, we’ll break down how due diligence works for both lenders and borrowers. Here’s everything you need to know.

Lending money to real estate investors can be a potentially lucrative venture, but it also comes with a lot of risk. To mitigate that risk, lenders spend a lot of time vetting borrowers and reviewing applications to make sure everything is in order. If you’re considered a high-risk borrower, it’s going to be harder to get a loan to purchase real estate.

During the due diligence period, hard money lenders essentially vet you as a borrower to make sure you’re worthy of the loan and the collateral you’re providing is enough to secure the loan. Not only does this help lenders protect their investments, but it also helps them maintain compliance with real estate regulations.

As a borrower, the due diligence period gives you time to do your research about the property you’re purchasing and the lender you’ve chosen. Start by making sure you’re working with a reputable lender by looking at online reviews and testimonials. You don’t just want a lender with positive reviews — you should look for a lender who has experience with the specific type of loan or property you’re considering.

The due diligence period also allows you to find out more about the property you’re purchasing. You can look at the condition of the property, the legal status of the property, and review financial records to make sure you want to move forward with the purchase. Once the period is complete, you can decide whether you want to finalize the deal.

The due diligence period is crucial because it gives lenders and borrowers a chance to alter course instead of finalizing a real estate transaction. Let’s look at some real-world examples of how due diligence can impact a sale.

Real estate laws specify due diligence is required in many states, and that’s because it gives borrowers and lenders a chance to make sure they want to move forward with the deal. In some cases, you may decide to back out of a real estate transaction after the due diligence period.

Let’s say you made an offer on a rental property you love, and you’re ready to finalize the deal and start looking for tenants. During the due diligence period, you might find a serious structural problem or electrical issue and decide you want to back out of the deal. Thanks to the due diligence period, you’re allowed to do that.

The due diligence period also plays an important role in finalizing real estate transactions. Once you’ve made an offer on a property and your offer has been accepted, the due diligence period is the last step before finalizing the deal. If inspections, appraisals, and title searches go well, you can move forward with the transaction.

The due diligence period is designed to protect borrowers and lenders — let’s look at some of the benefits and disadvantages.

When your offer is accepted, the due diligence period gives you a specific timeframe to make sure you want to move forward with the transaction. If you find a problem, you have plenty of time to back out.

The due diligence period extends the real estate transaction process, which means it takes longer to purchase property. However, this is a worthwhile tradeoff for the security it offers.