Due Diligence
After the purchase and sale agreement has been signed by both parties, there are a few more tasks are required to secure the funds from the lender as listed below:
- Mortgage Application
- Home Appraisal
- Title Search
- Homeowner's Insurance / Building Master Insurance
- Title Insurance
- Financing
Once the purchase and sale agreement have been signed by both parties, the homebuyer will need to send a copy to the lender of choice and apply for a mortgage if one hasn't been done yet, or update the mortgage application based on the final price.
Lender will have home appraised to ensure the homeowner is not over paying for a home as it would be a high risk to the lender. This is to ensure that if the homeowner stops making regular mortgage payments and the home goes into foreclosure, the lender will not end up owning a property that is worth less than their loan. Unfortunately this is the case for many lenders and is causing them to lose tens to hundreds of thousands of dollars for each foreclosed home over the past few years.
Title company will perform a detailed search to ensure the title does not have any issues such as liens or claims that need to be paid off and that the seller stated in the purchase and sale agreement actually has the right to sell the property.
Lender will require home buyer to obtain a new homeowner's insurance policy before the closing date. For condos, co-ops and townhouses, the lender will need to obtain the building's master insurance policy to ensure sufficient insurance coverage.
Lender requires buyer to purchase Lender's Title Insurance to protect lender from any problems with the title of the property that were not originally found prior to closing. Buyer's title insurance is not required but should also be purchased to protect buyer from any possible future problems with the title.
Lender's underwriting department will validate home buyer's application to ensure reported income and assets are accurate and that no major debt has been taken on recently. One of the most important factors is for the homebuyer's employment and income to be verified so the lender can be sure the home buyer is still employed at his or her company. A home buyer should also stay away from racking up large credit balances, especially getting a new car loan or lease prior to closing as that will change the home buyer's debt to income ratio and possibly disqualify home buyer from obtaining a mortgage.
