You have finally decided to do it, to buy your own home.  So, you have gone to a real estate agent who has shown you a house you have fallen in love with.  You have made an offer, the seller has accepted. You have developed a good relationship with real estate agent. You trust her. She says, “Don’t worry.  I have someone who will get you a mortgage, and I have a lawyer for you and, by the way, please sign a ‘binder’ for the house and hand over a $100 deposit.”  That is the moment when you should say, “STOP! Yes, I do want to buy the house, but I will not do anything until I speak with my own lawyer.”  To protect yourself, follow these five rules:

RULE 1: Never us a lawyer who has been recommended by the real estate agent or lender.  You want an independent lawyer of your own selection, someone who will look out for your interest only.  Your lawyer should ask for a retainer fee when you retain him or her.  A lawyer who does not ask for a retainer fee may be too eager for your purchase to be completed so that he or she will get paid.

RULE 2:  Do not sign a binder of hand over a deposit of any size before you retain an attorney.  Some real estate agents will ask you to sign a short contract, which they call a “binder” and to hand over a check for $100 or more as a show of good faith.”  Do not listen to such a request.  A binder is a contract, only a badly written contract but a contract.  It can cause you problems.  Instead, You should tell the real estate agent that your lawyer will call the seller’s lawyer to arrange for the contract.

RULE 3:  Shop around for a mortgage.  The real estate agent may suggest a lender.  There is nothing wrong with that, but it is likely that the real estate agent will receive a commission for sending you to the lender.  Check out that lender, but also shop around.  Ask your lawyer for recommendations, call your local banks, and look through advertisements in the Sunday New York Times.

RULE 4:  When shopping among lenders, ask them to explain every fee they intend to charge.  Among the numerous fees, expect the following: application fee, credit check fee, and appraisal fee.  Some lenders will also charge points.  A Point is equal to one per cent of the mortgage amount.  For example, if you have $150,000 mortgage and the lender is charging two points, you will be charged $3,000. 

RULE 5:  Have a qualified person inspect the house to determine its condition.  Either this should be done before you sign the contract to buy the house, or there should be a provision in the contract that allows you to have the house inspected after you sign the contract.
If you follow these five rules, you purchase will probably proceed smoothly.  But even if there are any problems, you will still be better off than you would be if you hadn’t been guided by these rules.