Purchasing a house represents a significant financial decision, requiring careful consideration of various factors. In Maryland, the average home value stands at $422,066, which is higher than the national average of $362,481. This difference underscores the importance of understanding the local market dynamics when planning a home purchase in the state.
Understanding down payment assistance programs, mortgage types and state-specific regulations and requirements can facilitate a smoother journey toward homeownership in the Old Line State. MoneyGeek has compiled key pointers to assist you in navigating the homebuying process in Maryland. From saving for a down payment and selecting the ideal location to finding the best financing option for your needs and credit history, these resources are designed to empower you with the knowledge needed for your homebuying journey.
How to Buy a House in Maryland: 6 Steps
The average home value in Maryland is $422,066. Before buying a house, save for a down payment, find the right location and get a home inspection to ensure a smooth purchase process.
Updated: December 6, 2024
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Key Takeaways
Maryland's average home value is $422,066, which is higher than the national average of $362,481.
To buy a home in Maryland, start by selecting an ideal location, exploring mortgage options, preparing to meet lender requirements, and closing the loan.
The Maryland Department of Housing and Community Development offers down payment assistance programs like Flex 5000 and Flex 3% Loan to help Marylanders achieve homeownership faster.
Step 1: Prepare to Buy a House in Maryland
According to the U.S. Census Bureau, Maryland's homeowner vacancy rate in the second quarter of 2024 was 0.4%. The homeowner vacancy rate measures the percentage of homes available for sale that are unoccupied. This metric helps gauge the housing market's health and availability.
With a stable homeowner vacancy rate at 2%, Maryland's 0.4% rate suggests there is not enough inventory on the market to satisfy homebuyer demand. This scenario indicates a competitive housing market where buyers may face challenges in finding available homes. Homebuyers in Maryland should be prepared for potential bidding wars and may need to act quickly when a property becomes available.
Before buying a house in Maryland, examine your financial and credit history closely. A strong financial profile enhances your chances of getting approved when applying for a mortgage. Lenders assess your creditworthiness and financial stability, which are critical in determining loan approval and terms. Strengthening your financial position can provide more options and better rates when securing a home loan.
Check Your Credit Score
Your credit score plays a significant role in determining the mortgage loans and interest rates you may qualify for. The higher your score, the more likely you are to secure favorable rates. As of the third quarter of 2023, the average credit score in Maryland is 716, according to Experian. This score can help guide your expectations when seeking a mortgage.
If you have a poor credit score, ranging from 300 to 579 on the FICO scale, buying a house is still possible, though getting approved for a mortgage may be a challenge. Check the table below to see which mortgage type is ideal for you based on the minimum credit score requirements.
Mortgage Type | Description | Minimum Credit Score |
---|---|---|
Conventional Loan | Conventional loans are standard loans not insured by the government, typically offering competitive rates. | 620 |
Jumbo Loan | Jumbo loans exceed conforming loan limits, making them suitable for high-value properties. | 700 |
FHA Loan | FHA loans are designed for low-to-moderate income borrowers, often with lower down payment requirements. | 500–580, depending on the down payment |
VA Loan | VA loans offer veterans and active military members favorable terms and no down payment options. | None given, but may require at least 620 |
USDA Loan | USDA loans are aimed at rural property buyers, often with no down payment required. | 580 |
Source: Experian
Review Your Debt-to-Income (DTI) Ratio
Your debt-to-income ratio (DTI) is a valuable metric for lenders to assess how much of your monthly income is allocated to debt payments. This ratio helps them evaluate the amount of mortgage debt you can feasibly handle. In Maryland, the average mortgage debt was $281,335 in the third quarter of 2023, according to Experian. This figure highlights the financial responsibilities you're likely to encounter when purchasing a home in this state.
Monthly debt payments factored into your DTI include mortgages, credit card balances, student loans and other obligations. Use our debt-to-income ratio calculator below to determine your front-end DTI, back-end DTI and total monthly debt payments. Front-end DTI focuses on housing-related expenses, while back-end DTI encompasses all monthly debts.
Debt-to-Income Ratio Calculator
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Determine How Much You Can Afford
Buying a house you can't afford can lead to financial strain and stress. To avoid this, use the 28% rule as a guideline. This rule suggests that you should not spend more than 28% of your monthly income on your mortgage payment. By adhering to this rule, you can ensure that your housing costs remain manageable and don't impede your financial stability.
According to the U.S. Bureau of Labor Statistics, the median annual income in Maryland in April 2024 is $55,810. This translates to a gross monthly income of $4,651 before taxes. Applying the 28% rule, you should aim to spend no more than $1,302 on your monthly mortgage payment. This calculation can help you plan your home purchase according to your financial capacity.
Use our mortgage calculator below to get a ballpark figure of your monthly mortgage payment in Maryland.
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Updated: Dec 6, 2024
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When planning to buy a house, it's essential to consider more than just the mortgage payment. Additional housing expenses can significantly impact your budget. Property taxes and homeowners insurance are two key costs that homebuyers need to factor into their financial planning. These expenses can vary widely depending on the location and value of the property, and they are crucial in determining the overall affordability of a home.
Maryland residents face a property tax rate of 1.05% on owner-occupied properties, according to Tax Foundation data. Additionally, the average cost of homeowners insurance in Maryland amounts to $1,916 annually. These figures highlight the importance of considering these expenses in your budget, ensuring you have a comprehensive understanding of the financial obligations involved in homeownership.
Step 2: Save for a Down Payment in Maryland
A down payment is the initial amount you pay upfront when purchasing a house. It plays a critical role in the homebuying process, often serving as a measure of your financial commitment. Traditionally, a 20% down payment is the standard, but this can be a substantial obstacle for many homebuyers. For instance, in Maryland, the average home value is $422,066, making a 20% down payment $84,413. For homes above this average, valued at $490,000, the 20% down payment rises to $98,000.
Fortunately, saving up for a 20% down payment is not a requirement. Many mortgage types allow for lower down payments. Government-backed loans like VA loans require no down payment, while FHA loans require as little as 3.5%. These options can make homeownership more accessible to a broader range of buyers.
If you choose to put down less than 20%, your lender may require you to take out private mortgage insurance. This insurance protects the lender in case you default on the loan. You can use our PMI calculator to estimate your monthly private mortgage insurance premium based on your credit score and down payment.
Private Mortgage Insurance Calculator
Calculate your monthly private mortgage insurance (PMI) premium in Maryland based on your credit score and down payment.
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Explore Down Payment Assistance Programs
Maryland offers several down payment assistance programs to help make homeownership possible for many people. These programs aim to ease the financial burden of buying a home, allowing more individuals to achieve their dream of homeownership. To explore the available options, check out the table below for the down payment assistance programs in Maryland offered by the Maryland Department of Housing and Community Development (MDHCD).
Program | What It Offers |
---|---|
Flex 5000 | This program provides a zero-interest second lien loan of $5,000 for down payment and closing costs. Payments are deferred until the first mortgage ends, is refinanced, or the home is sold. |
Flex 3% Loan | This program offers a zero-interest deferred second lien loan equal to 3% of the first mortgage, which can be used for down payment costs. |
Step 3: Find the Right Location in Maryland
Finding the right location in Maryland for your new home involves evaluating several factors. Consider the average house price in different areas and how close you'll be to family, friends, your workplace, or school. Also, assess the accessibility to public transportation, parks, restaurants and shopping centers to ensure your lifestyle needs are met.
The cost of living significantly impacts your decision when choosing a new home. According to the Missouri Economic Research and Information Center (MERIC), Maryland's cost of living index for the first quarter of 2024 is 116.2, which is higher than the national average of 100. Consider these essential expenses:
- Food
- Healthcare
- Clothing
- Utilities
- Education
- Transportation
- Entertainment
Check out the table below to see some cities in Maryland and their average home values based on recent data. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.
City | Average Home Value |
---|---|
Baltimore, MD | $188,706 |
Columbia, MD | $499,314 |
Frederick, MD | $459,943 |
Germantown, MD | $430,999 |
Silver Spring, MD | $547,143 |
Source: Zillow
Work With a Real Estate Agent
Working with a real estate agent can accelerate your house hunt in Maryland. They provide the advice you need, assist with paperwork and offer an expanded list of property options that you wouldn't access alone. Additionally, they can recommend other service providers like title companies and inspectors to aid in the home buying process.
When finding a real estate agent, ensure you do your due diligence by interviewing agents experienced in the neighborhoods you're interested in. Consider the following tips:
- Find someone compatible with your needs and personality
- Verify the agent's credentials, training and licensure
- Ensure they have in-depth knowledge of the area
- Shop around for agents and compare their rates
You can also use the license holder search tool from the Maryland Department of Labor to find or verify real estate agents in Maryland.
Step 4: Shop for the Best Financing Options in Maryland
Buying a home involves finding a mortgage that fits your budget. In Maryland, options include conventional, jumbo, FHA, VA and USDA loans. You can choose from 10-year, 15-year, 20-year, or 30-year terms. Decide between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Selecting the right financing can boost your approval chances and save money over time.
Know the Current Mortgage Rates
Interest rates on mortgages can change daily, influenced by factors such as the type of mortgage, the lender and overall economic conditions. While the interest rate is the cost of borrowing expressed as a percentage, the Annual Percentage Rate (APR) provides a broader perspective by including additional costs like fees, thereby reflecting the true cost of borrowing. Understanding the difference helps you make more informed financial decisions.
As of December 2024, the APR for a 30-year fixed conforming loan in Maryland is 6.43%, while the APR for a 30-year fixed rate FHA loan is 7.86%. To see the current mortgage rates in Maryland by mortgage type, check the table below.
- 10-Year Fixed
- 15-Year Fixed
- 15-Year Fixed Rate FHA
- 15-Year Fixed Rate Jumbo
- 15-Year Fixed Rate VA
- 20-Year Fixed
- 30-Year Fixed
- 30-Year Fixed Rate FHA
- 30-Year Fixed Rate Jumbo
- 30-Year Fixed Rate VA
- 5-Year ARM
- 5-year ARM Jumbo
- 7-Year ARM
- 7-year ARM Jumbo
6.35% | 6.43% |
When shopping for a mortgage in Maryland, you often choose between government and conventional mortgage programs. FHA loans stand out with their government backing, typically offering lower credit score requirements and down payments. In contrast, conventional loans lack government backing and may require higher credit scores.
Use our FHA loan vs. conventional loan calculator to compare your options. By entering your home price, down payment, term length, credit score and interest rate, you can determine the best loan type for your needs.
Get Pre-Approved
Getting pre-approved for a mortgage in Maryland can provide clarity on your budget and strengthen your position when making an offer on a home. Lenders usually issue a mortgage pre-approval letter, which outlines the loan amount you qualify for. This letter is typically valid for 60 to 90 days and signals to sellers that you are a serious buyer with the financial backing to purchase a home. It can also help you identify any potential issues with your credit or finances early in the process.
To get pre-approved, you'll need to submit several documents, including:
- Identification (e.g., driver's license or passport)
- Income verification (e.g., pay stubs, W-2 forms, or tax returns)
- Employment verification (e.g., employer contact information)
- Credit history (e.g., credit report)
- Asset documentation (e.g., bank statements or investment account statements)
There are plenty of lenders in the market, each with varying eligibility requirements, interest rates and fees. Doing your homework is necessary to find the right fit for your needs. Banks and credit unions are common mortgage lenders. Banks often provide a wide range of products and services but may have stricter requirements and less personalized service. In contrast, credit unions might offer more personalized service and potentially lower rates, though they often require membership.
When choosing the right lender, consider the following tips:
- Ensure the lender offers the type of loan you want. For example, if you're seeking an FHA loan, confirm that the lender is FHA-approved.
- Compare the lender's sample rates with today's mortgage rates in Maryland.
- Understand the lender's underwriting process and determine if you can complete the mortgage application online, by mail, or in person.
- Check reviews to assess the quality of customer service the lender provides.
Step 5: Conduct a Home Inspection in Maryland
Home inspections play a pivotal role in the homebuying process in Maryland. They are highly recommended as they help uncover potential issues that may not be visible during a regular viewing. Inspectors typically examine various parts of the house, including structural elements, roofing, plumbing, electrical systems and HVAC. The inspection report usually details the condition of these areas and highlights any potential problems.
For example, an inspection might reveal major issues such as a faulty foundation or outdated electrical wiring. These findings can affect the home's appraisal value, potentially lowering it. This might lead buyers to reconsider their purchase. In some cases, buyers may decide to rescind their offer based on the inspection results, especially if the cost of repairs is substantial or if the issues pose safety concerns.
State-Specific Inspections
Home inspections in Maryland are regulated by the Maryland Commission of Real Estate Appraisers and Home Inspectors, which operates under the Maryland Department of Labor. Home inspectors must follow the standards of practice established by the commission. They are required to deliver a summary of their findings to clients within 24 to 48 hours after the inspection.
When seeking a home inspector in Maryland, ensure they are licensed. Look for reviews and ask for references to gauge their reliability. It's wise to use the Maryland Department of Labor's home improvement public query tool to verify their license. This approach helps you make an informed decision and avoid potential pitfalls.
Go Through Appraisal
Home appraisals play a pivotal role in the homebuying process in Maryland by determining the market value of a property. This assessment is crucial for both buyers and lenders to ensure the property's price aligns with its worth. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median appraisal cost in 2023 was $500.
While both inspections and appraisals are integral to the homebuying process, they serve distinct purposes. A home appraisal evaluates the property's market value, which is essential for lenders to verify that the loan amount is appropriate. In contrast, a home inspection focuses on the property's condition, identifying any potential issues that may need addressing. Lenders require appraisals to safeguard their investment by ensuring the property is valued correctly.
Step 6: Close on Your House in Maryland
Closing is the final step in buying a house in Maryland, marking the official transfer of ownership and the moment you receive the keys. Your lender must provide a closing disclosure document three days before the official closing. This document outlines the loan terms, projected monthly payments and closing costs. Plan a final walk-through with your real estate agent near closing day to ensure the property is in the expected condition.
Sign All Documents
During closing day, you'll review and complete a lot of paperwork. Some of the key documents you need to sign include:
- Final loan application: Confirms all the details of your loan, including the interest rate and loan amount. It verifies your financial information and ensures everything is accurate before finalizing the loan.
- Deed transfer: Transfers property ownership from the seller to you. It is a legal requirement to officially become the home's new owner.
- Promissory mortgage note: Outlines your loan repayment terms, including the amount you owe, the interest rate and the repayment schedule. It is a legal promise to repay the loan under the specified terms.
- Homeowners insurance: Protecting your new home is essential. Maryland home insurance covers potential damages to your home and provides peace of mind as you settle into your new property.
Hiring a real estate lawyer is a common practice when buying a house, whether or not it is mandatory in Maryland. A real estate lawyer specializes in property law and typically handles tasks such as drafting and reviewing contracts, conducting title searches and ensuring compliance with local regulations. Their expertise helps protect homebuyers from potential legal issues and ensures a smoother transaction process. By hiring a real estate lawyer, buyers can reduce the risk of future disputes.
The cost of hiring a real estate lawyer generally ranges between $700 and $1,250. This cost can vary depending on several factors, including the complexity of the sale, the property's location, the type of property and the specific needs of the homebuyer. Understanding these variables can help buyers budget appropriately and make informed decisions about their legal representation during the homebuying process.
Pay Closing Costs
Closing costs are the fees incurred during the finalization of a real estate transaction. In Maryland, the average closing costs amount to $5,122, as reported by NAR. These costs include several specific fees:
- Appraisal fee: This fee covers the cost of evaluating the property's market value to ensure the loan amount aligns with the home's worth.
- Title search and insurance fee: This fee guarantees that the property's title is clear of any liens or disputes, protecting both the buyer and lender from potential legal issues.
- Escrow deposit: An escrow account is used to hold funds for property taxes and insurance premiums, ensuring these obligations are met on time.
- Prepaid costs: These are upfront payments for future expenses, such as property taxes and homeowner's insurance, often required at closing.
- Other closing costs: This category includes various administrative fees, such as loan origination fees, recording fees and credit report fees.
Maryland Homebuying Details: What You Should Know
While we have outlined the general steps for navigating the homebuying process, Maryland has unique regulations and practices that buyers need to understand. Familiarity with these state-specific aspects helps prevent legal complications and ensures a smoother transaction.
- 1
Dual agency is allowed
Dual agency occurs when a single real estate agent or broker represents both the buyer and the seller in the same transaction. This practice can occur in Maryland, but it must be fully disclosed and agreed upon by both parties in writing.
- 2
Seller disclosures are required
Maryland law requires sellers to either fill out a Residential Property Disclosure Statement or a Disclaimer Statement. The Disclosure Statement requires the seller to reveal any known defects in the property, while a Disclaimer Statement means the seller makes no representations or warranties regarding the property's condition.
- 3
A real estate transfer tax is imposed
Maryland imposes state and county transfer taxes on the sale of property, which can vary by locality. Buyers and sellers typically share these costs, but the specific split can be negotiated differently in the contract.
If you are a first-time homebuyer, understanding the different first-time homebuyer programs in Maryland can help you achieve homeownership faster. These programs often offer financial assistance, educational resources and support, which can ease the financial burdens associated with purchasing a home. By exploring these options, you may find pathways that align with your needs and expedite your journey to owning a home.
FAQ About Buying a House in Maryland
Buying a house in Maryland is a substantial financial commitment that could last for years. We addressed some frequently asked questions about purchasing a home in Maryland to help you kickstart your homebuyer journey.
How much does it cost to buy a house in Maryland?
The average home value in Maryland is $422,066. This can vary significantly depending on the city or neighborhood you choose.
What are the requirements to buy a house in Maryland?
To buy a house in Maryland, you'll need to prepare for a down payment, secure a mortgage pre-approval, and have a good credit report. You'll also need to cover closing costs and potentially meet specific lender requirements.
What credit score do I need to buy a house in Maryland?
The minimum credit score required varies by mortgage type. For an FHA loan, you need a score between 500 and 580 depending on the down payment. A VA loan may require at least 620. The average credit score in Maryland is 716, according to Experian in 2023. With this score, you're more likely to get approved and secure favorable loan terms.
How much income do I need to buy a house in Maryland?
The income needed depends on factors such as location, home price, down payment, credit report, and debt-to-income ratio. The median annual income in Maryland is $55,810 as of April 2024, according to the U.S. Bureau of Labor Statistics.
Is buying a house in Maryland a good idea?
Whether buying a house in Maryland is a good idea depends on your personal circumstances and preferences. Maryland offers diverse landscapes, proximity to major cities, and a rich cultural scene, making it an attractive place to live for many.
About Zachary Romeo, CBCA
Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production.
Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.
sources
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- Experian. "Which Credit Scores Do Mortgage Lenders Use?." Accessed December 6, 2024.
- Maryland Department of Housing and Community Development (MDHCD). "Maryland Mortgage Program Flex." Accessed December 6, 2024.
- Maryland Department of Labor. "Real Estate Commission Public Query." Accessed December 6, 2024.
- Maryland Department of Labor. "Home Improvement Public Query." Accessed December 6, 2024.
- Missouri Economic Research and Information Center. "Cost of Living Data Series." Accessed December 6, 2024.
- National Association of Realtors. "2023 Appraisal Survey." Accessed December 6, 2024.
- National Association of Realtors. "States Where Closing Costs Are Highest, Lowest." Accessed December 6, 2024.
- Tax Foundation. "Property Taxes by State and County, 2023." Accessed December 6, 2024.
- U.S. Bureau of Labor Statistics. "Occupational Employment and Wage Statistics." Accessed December 6, 2024.
- U.S. Census Bureau. "Housing Vacancies and Homeownership (CPS/HVS)." Accessed December 6, 2024.