Make sure you get a home inspection and you can void your contract if there are serious problems with the house.

Due diligence is very important, I've actually pulled out of three contracts to buy and had my deposit refunded because I did my homework. Once when the property failed the termite inspection (that was a condition of the offer, it had to pass, instead it was riddled with termites and had fire damage in the roof space, it actually ended up being demolished) and twice because the property boundaries were not where they were presented as being (in one case it ran through the garage).
I don't know how it works in the States but in Australia due diligence allows you to withdraw from a contract if you find fault with the title or you can prove the property has been seriously misrepresented and have your deposit refunded. If you can't get finance or change your mind yes you've done your deposit.

Guess I'm confused the way the realtor explained it, if I go under contract and for whatever reason I have to back out of the deal I lose my down payment.

They need to do a Title Search. It is stressful without a realtor. I tried it and had a buyer back out and had to get a realtor anyways.

Make sure the sales contract includes title insurance!!

As I understand it , " due diligence , " refers to making a reasonable search , for instance , someone has made a reasonable search of the background records of previous ownership of the property . Under most circumstances , ownership of a home is recorded when a property is sold , or when the owner dies and wills the property to someone else . It could also change hands when someone fails to pay their mortgage payments and the property goes into foreclosure , then the bank sells it to someone else . If someone dies and there are no heirs or relatives , things can get a bit more complicated . The point is , you don't want to buy a property , then find out someone else has a legitiment claim to it .

Just go and squat in a new house like they do here in SA. and then demand the titled
deeds for absolute free ?

Due diligence = research like your life depends on it. If you like a particular house, obsess over every detail - check the noise levels in the neighborhood at all hours and especially weekends vs workdays. Don't ever, ever buy a property with a shared driveway or "easements", it will only lead to misery in the future. Figure out what things you really want in a house and on the most important ones, don't compromise.