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What Is Due Diligence Money?

Reviewed by: David Naimey

Approved by: Chad Turner

KEY TAKEAWAYS

  • Due diligence money is a check provided by the buyer early in the home loan process, ensuring property safety and sanitation.
  • It covers various inspections like home, septic, property survey, and roof inspections.
  • The due diligence period allows buyers to investigate the home’s condition and terminate the contract if it doesn’t meet their standards.
  • If the contract is terminated during the due diligence period, funds like earnest money and due diligence checks can be returned to the buyer.
  • Earnest money can be lost if the buyer changes their mind post-due diligence period, while due diligence money is always non-refundable.

ON THIS PAGE

If you’ve been around friends or family that have recently purchased a home, you may have heard them talk about needing a due diligence check. The due diligence check is a check that’s provided by the buyer at the beginning of the home loan process that’s to be used towards home inspections to insure the property is safe and sanitary. The type of inspections made can be the entirety of a home inspection, septic inspection, property survey, roof inspection or others.  However, there’s a specific amount of time that these can be done to give the buyer time to decide whether to terminate the contract or continue with buying the home. The earnest money deposit, or good faith deposit is similar in a few ways, but is used for different purposes. Just like how the earnest money deposit as a transaction is done relatively early on the mortgage lending process, the due diligence fee is also handled very early on.

The Due Diligence Period

The due diligence money is submitted during the due diligence time, also known as the due diligence period, of the home buying process. The due diligence period is a given amount of time after the buyer and seller draft up the purchase contact. This due diligence period, length of time determined by the contract, gives home buyers the time to investigate the home to make sure it’s safe for them. As mentioned before, this includes allowing inspections like a full home inspection to be done, to insure the home is safe and sanitary up to the prospective home buyer’s standards. If the home is not up to standards, the buyer can terminate the contract, and any funds paid directly to the seller, like the earnest money and due diligence checks can be returned to the borrower free of charge. If this happens, the seller and buyer can either renegotiate the contract. This can be with sitting down with the real estate agents and re-negotiating the purchase price, how much the seller’s concessions will be, or if the seller should be on the hook for any repairs that may come up later on in the process.

Due Diligence Fee and Earnest Money Deposit

As mentioned before, the Earnest Money deposit, or good faith deposit, and the due diligence fee or check are made out for different reasons. However, the due diligence and/or earnest money deposit are both done relatively early in the home buying process. As mentioned before, the due diligence check and earnest money deposit are made for different reasons. The earnest money deposit amount is usually made by the prospective home buyer and accepted by the seller. The earnest money deposit is usually credited towards the purchase of the home, and may or may not be refunded after the due diligence period based on the arrangement on the purchase contract the buyer and seller executed. Remember that the Earnest Money Deposit can be lost completely if the buyer changes their mind about buying the house after the due diligence period, or the transaction does not complete due to reasons outside of the ones listed for Earnest Money reimbursement in the contract. The due diligence money, however, is always non-refundable.
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