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

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Updated: May 31, 2023

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In Maryland, the median cost of a house is currently $406K, an increase of 7.8% over the previous year. Properties in the state cost significantly more than the national average of $357K.

Maryland has had slower growth in average property prices than the nation over the last year, with the average state price rising 13.5%, compared to Maryland's 7.8%.

If you are looking for the cheapest places to buy a house in Maryland, MoneyGeek takes you through a step-by-step process to help you navigate and manage the down payment process, mortgage approval and home inspection.

Key Takeaways

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The average cost of a home in Maryland is $406,304.

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Homebuyers must fulfill the minimal credit score, debt-to-income ratio and income standards to obtain a mortgage.

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Before submitting an offer and finalizing the purchase, you must choose the right home for your needs, research rates, obtain pre-approval and conduct a home inspection to purchase a property in Maryland.

Choose an Ideal Location

Depending on where you choose to live, the cost of your home may vary significantly. For instance, homes in Riva cost around $622K, while homes in Bowie cost around $489K. Other factors that can also impact your neighborhood’s value include the standard of living, accessibility of services, leisure activities and more.

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WORK WITH A REAL ESTATE AGENT

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
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CALCULATE THE COST OF LIVING

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.

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CONSIDER AFFORDABLE NEIGHBORHOODS

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.

Calculate Mortgage Rates

If you’re looking for the best place to buy a house in Maryland, you’ll need to consider how much your mortgage will cost — different lenders will also offer varying rates. As you explore several options, you’ll need to determine which mortgage best fits your needs and budget. Think about your credit score, how much you can put down on a property and what monthly payments you can afford.

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SEE YOUR MORTGAGE 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:

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

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USE A MORTGAGE CALCULATOR

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.

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KNOW YOUR QUALIFICATIONS

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.

Prepare Down Payment Requirements

Saving up for a down payment can be challenging. Although the typical down payment required by conventional loans is 20%, the percentage can be as low as 3.5%, depending on your mortgage type and the total cost of your loan.

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DETERMINE DOWN PAYMENT REQUIREMENTS

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.

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CALCULATE MORTGAGE INSURANCE

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.

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DOWN PAYMENT ASSISTANCE PROGRAMS

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.

Get Pre-Approved for a Mortgage

Pre-qualification and pre-approval give borrowers a rough idea of the home they can afford. To pre-qualify for a house loan, you must provide information about your finances, and the lender will conduct a credit check.

On the other hand, a mortgage pre-approval is a more formal procedure that may require you to submit tax returns and pay stubs. Typically, a pre-approval is a more reliable indicator of your ability to pay and lends more weight to your offer than a pre-qualification.

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GATHER NECESSARY DOCUMENTS

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.

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TIME YOUR PRE-APPROVAL

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.

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RECEIVE PRE-APPROVAL LETTER

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.

Conduct a Home Inspection

Before closing, a buyer has the chance to discover any significant concerns about the home through a home inspection. If the house has safety or structural issues, you can opt out of the purchase or use the information as leverage to lower the price. Additionally, you'll want to allow yourself enough time to conduct any additional inspections that could be required.

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CONTACT A LICENSED INSPECTOR

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
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FOLLOW MARYLAND-SPECIFIC INSPECTIONS

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.

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GO THROUGH APPRAISAL

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.

Close Your Mortgage Loan

The final stage of purchasing and financing a home involves closing on your mortgage.

Make sure you read and understand all loan documents before signing anything. If there are any issues with the papers, do not sign them. Also, keep in mind you may need to pay closing costs.

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SIGN ALL DOCUMENTS

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.

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PAY CLOSING COSTS

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.
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COMPLETE YOUR HOME PURCHASE

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.

Maryland Homebuying Details

The cost of living in Maryland is higher than the national average. However, qualified first-time home buyers have access to several state programs that can help with down payment and closing costs.

1

If you're buying a home for the first time, Maryland's transfer tax, which is usually 0.5% of the sale price, is reduced to 0.25%, and the seller is responsible for that fee.

2

Real estate buyers in Maryland are not required by law to hire an attorney, but it may be a good idea to hire one to double-check all the legal requirements before you sign off on any documents.

3

Every seller of a home in Maryland is required by law to fill out a disclosure form that lists any known problems with the house. Carefully read this form to identify any major structural issues before buying your new property.

Frequently Asked Questions About Buying a Home in Maryland

MoneyGeek answers questions about how to buy a house in Maryland.

What are the most important questions to ask when buying a house in Maryland?
Is buying a house in Maryland a good idea?
Is it wise to buy a house in Maryland in 2023?
How much income do I need to buy a house in Maryland?
How much is property tax in Maryland?
Which Maryland city is the cheapest to buy a home?

Experts' Advice About Buying a Home in Maryland

  1. What are the key factors to consider when buying a house in Maryland?
  2. What is the minimum credit score required for purchasing a house in Maryland?
  3. What common mistakes do home buyers make when trying to purchase a property in Maryland, and how can they avoid these pitfalls?
  4. Are there any programs available to help first-time home buyers in Maryland?
Jeff Johnson
Jeff JohnsonOwner of Simple Homebuyers
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