How to Buy a House in Maryland: 6 Steps

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.

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.

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.

Source: Experian

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.

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.

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.

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).

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.

Source: Zillow

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

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.

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 October 2024, the APR for a 30-year fixed conforming loan in Maryland is 5.84%, while the APR for a 30-year fixed rate FHA loan is 6.41%. To see the current mortgage rates in Maryland by mortgage type, check the table below.

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)

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.

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.

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.

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.

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.

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.

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.

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.