How to Buy a House in Maryland: A Homebuyer’s Guide

If you're unsure where to start, a real estate agent can be helpful as you search for a Maryland property. They'll take you on home tours, assist you in creating a strong offer, bargain on your behalf and help you with the financial details. A buyer's agent who is well-versed in the local market will be more effective in helping you find the ideal home within your desired price range and time frame.

To find the best real estate agent for your needs, follow these steps:

• Ask for recommendations from family and friends
• Request for and check references — ensure they are licensed and certified
• Interview your top options
• Compare fees and rates

Another factor homebuyers need to consider is the cost of living. The cost of living is the amount required to maintain a specific lifestyle level in a chosen area. It is often used to compare how livable a city is based on your income. For instance, you will spend around 12% more of your income on housing, food and utilities in Gaithersburg compared to Baltimore.

Some factors to consider when calculating the cost of living include the following:

• Housing
• Taxes
• Healthcare
• Food
• Education
• Transportation
• Entertainment

Money Geek’s cost of living calculator can help you estimate how much you’ll need to relocate to a new area and how the cost compares to the national average.

Maryland can be a relatively expensive state to live in, so homebuyers may want to explore the more affordable neighborhoods. For example, Baltimore has a more affordable cost of living compared to Gaithersburg. Other affordable areas include Odenton, Crofton and Bowie.

However, suburban living and city living have their pros and cons. Living in the suburbs can save you money, but may come at the expense of amenities like hospitals, schools and shopping centers. City living is often more expensive but close to a vibrant social scene and a wide variety of entertainment options.

The interest rate you pay on a mortgage can change based on the type of loan you get. For instance, people with better credit scores are more likely to be offered favorable interest rates. Your credit score, income, debt-to-income ratio and employment history can influence your interest rate.

Average interest rates for various types of mortgages in the state of Maryland are as follows:

• Conventional home loans: 6.9%
• VA loans: 6.5%
• USDA loans: 3.3%
• FHA loans: 7.6%

Keep in mind certain loans have prerequisites. For instance, only service members and veterans are eligible for VA loans.

To estimate your loan repayment timeline, you can use MoneyGeek’s mortgage calculator. You can also use MoneyGeek’s FHA vs. Conventional loan calculator to help you find the most affordable mortgage option for your needs. Typically, FHA loans are for applicants with lower credit scores, while conventional loans are for those with higher credit scores.

You should also check how rates vary between Maryland lenders to ensure you are getting the best deal. Keep in mind that interest rates are only part of the picture — the annual percentage rate (APR) represents the sum of all interest and fees associated with a loan. Late fees, repayment periods and discounts are also other factors to consider.

Term lengths and rates can vary significantly between borrowers depending on their financial profile. Before approving a loan, lenders often consider a combination of the following criteria:

• Credit score: Good credit scores often mean lower APRs and better terms.
• Credit history: Your credit history shows your capacity to repay your debts and can demonstrate to lenders you can make on-time mortgage payments.
• Down payment: Your lender will frequently offer you a reduced interest rate if you make a larger down payment.
• Debt-to-income ratio (DTI): Your DTI is computed by dividing your monthly debt, including your anticipated house payment, by your monthly income.

Down payment requirements vary based on the type of mortgage option. For instance, the typical down payment for a conventional loan is 20%. In contrast, VA loans don't require down payments but are only available to eligible military personnel.

USDA loans, which are supported by the Rural Development program of the U.S. Department of Agriculture, are another zero-down-payment option. The loans are available to people with fair to good credit scores who purchase properties in rural areas.

The down payments for FHA loans range from 3.5–10%, depending on the borrower’s credit score.

The amount of your down payment can also impact your loan’s cost. For instance, a lower down payment can result in higher monthly payments.

Mortgage insurance helps you qualify for a loan by reducing the lender's risk. It is typically required when borrowers pay less than 20% of the home's price as a down payment. On FHA and USDA loans, mortgage insurance is often necessary as well. Keep in mind that you must meet specific requirements to be eligible for mortgages with no down payment.

If you obtain a loan that is supported by the Department of Veterans Affairs (VA), the VA guarantee will take the place of mortgage insurance. You will, however, have to pay a "financing fee" in advance.

Maryland offers assistance programs to people unable to make required down payments. These include The Maryland Department of Housing and Community Development’s 1st Time Advantage Loan program for eligible first-time homebuyers and the Maryland Mortgage Program Flex line.

• 1st Time Advantage loans: Provides affordable 30-year fixed interest rate loans to qualified first-time homebuyers.
• Maryland Mortgage Program Flex Line: Offers several options, including grants, zero-interest loans and forgivable loans.

In addition, any financial assistance you receive from a 1st Time Advantage 6000 or Flex 6000 loan is matched (up to $2,500) as supplementary down payment assistance.

Lenders typically need your financial and personal details to approve a loan. They may also ask you to submit additional supporting documentation demonstrating your eligibility, depending on the type of mortgage.

Expect the lender to ask for the following:

• Pay stubs from the previous 30 days
• Two years' worth of W-2 forms
• Signed federal tax returns for the last two years
• Two most recent bank statements
• Proof of the origin of your down payment
• A driver's license or other valid ID
• Social Security number

Lenders determine how much they are willing to offer you based on the information you submit. Inaccurate information could lead to expensive future consequences, while incomplete documents can cause delays.

When preparing to purchase a home, being pre-approved for a mortgage is an important step. Obtaining a pre-approval could take as little as 24 hours or as long as 10 days.

Depending on your lender, the time a mortgage pre-approval remains valid can vary but typically lasts between 60 and 90 days. You should only apply for pre-approval if you are about to purchase a property because your financial circumstances can change significantly in only a few months.

The pre-approval letter will expire and cease to be valid after the allotted time period. As a result, you will have to apply for pre-approval again.

Mortgage pre-approval, which comes in the form of a pre-approval letter, is the lender's conditional approval for a house loan. It informs sellers that you will probably be authorized for a specific amount of financing based on the data you provided.

Almost all pre-approval letters will contain the same information, including:

• Loan type (e.g. conventional, FHA, VA or USDA loan)
• Length of loan
• Maximum loan amount you may borrow
• Whether it is an adjustable or fixed-rate loan
• Expiration date of the pre-approval letter (typically up to 90 days)
• Maximum purchase price (the loan amount in addition to your down payment)

While there’s no limit to the number of letters you can apply for, keep in mind that pre-approval credit checks can hurt your credit score.

It’s best to work with a licensed inspector to get a detailed home inspection in Maryland. You can ask for recommendations and consult the Better Business Bureau (BBB) in your community or any relevant state or municipal licensing bodies.

Your Maryland home inspection should cover the following:

• Foundation, roof and attic
• Downspouts and rain gutters
• Exterior
• Power outlets and light switches
• Thermostats and HVAC systems
• Plumbing, faucets and water heaters
• Floors, windows and ceilings
• Windows and doors
• Railings, steps and stairs
• Balconies and porches
• Driveways and walkways
• Basements and garages

Remember that many cities and regions might have their own inspection laws. Contact your real estate agent to check whether any particular inspection rules apply to your location.

For instance, lead risk in rental properties is addressed through laws and regulations in Maryland, which mandate periodic inspections. A rental home built before 1978 must, at the very least, conform to the Risk Reduction Standard.

An appraisal is a professional judgment of a home's value. During the process, a certified appraiser compiles a report based on an in-person inspection, an investigation into previous sales of comparable properties, market trends, and specifics of the home, such as its size, condition, floor layout and amenities.

Since the appraisal mainly serves to safeguard the lender's interests, the lender typically requests one. However, the borrower usually pays the fee. The price of an appraisal might vary based on the size, condition and level of detail necessary, but it usually runs in the several hundred dollar range.

Once you agree to the loan's conditions, carefully examine and sign the paperwork. Before signing, make sure the loan conditions match what you agreed to. If you think there are errors, let your lender know and ask questions about anything you don't understand.

Some documents you may need to sign, include:

• Your closing disclosure, which spells out the terms of the loan.
• Your mortgage promissory note, in which you legally commit to repaying the debt.
• The deed, which officially gives you title to the property.

A notary public must witness your signature on some documents, such as the deed of trust. Your lender will also want proof of homeowners insurance to fund your mortgage.

Your lender will provide you with a document called the Closing Disclosure a few days before you attend your closing meeting. It will include a breakdown of all closing costs and your overall debt.

Typically, closing costs include:

• Appraisal fee: Covers the expense of hiring a qualified appraiser to inspect a property and determine its market worth.
• Fees for tax service providers: A cost that a lender assesses and collects to make sure borrowers pay their property taxes on time.
• Fees for title insurance: Allows a title firm to examine, correct, and guarantee the property's title.
• Other costs: Before your first payment is due, you may have to pay government taxes, property taxes, homeowners insurance and interest.

Although purchasing a home might be stressful, understanding the process can help you reach your goals. Once you've chosen the best place to buy a house in Maryland, you can start taking the next steps we've outlined.

Don't forget to check your documents and track due dates related to your mortgage. Consider setting up automatic payments to avoid missing deadlines or schedule regular reminders. If you have any remaining questions, you can always consult your realtor.

Buying your first home can be overwhelming, but you can make it easier on yourself by creating a checklist. A list lets you see how far you've come and helps you prepare for closing.