Our new Offer To Purchase that was put in affect in January of 2011 has brought on some much needed fairness to the seller. The seller is paid a due diligence fee by the buyer to allow the buyer to investigate the property.
Really the most important aspect of buying a house is now in the preparation. It never should have been up to the seller to determine the buyer’s credit worthiness. Now that we have a due diligence period, the contract should only be about the property. After all it is an offer to purchase a property.
The buyer should investigate his/her credit worthiness and be comfortable with it before EVER writing a contract. You see the due diligence will only really work as intended if the buyer is pretty sure they can be approved for a loan.
So, what are the steps for loan approval?
Pre-Qualification
This occurs when the buyer provides information about income, assets and liabilities to a lender and allows a credit report to be run.
Pre-Approval
This step requires confirmation of income and assets through thorough documentation like bank statements, paystubs, W2’s and tax returns.
Final Approval
This occurs when all information is validated and an appraisal is completed that is acceptable to his/her lender.
So where should the buyer be before writing an offer? They should have completed the Pre-Approval process. This would only leave selecting the property and having the appraisal done along with other ‘property’ inspections. You see the due diligence should only include issues with the home and not issue with the buyers credit worthiness.
If the buyer is PREPARED, the due diligence period can be done in 10-15 days and the due diligence amount can be a small sum of money or ZERO!
