How to Buy a House in Maryland in 2024

So you’ve decided to buy—congratulations! Learning how to buy a house in Maryland can be exciting and overwhelming, but you don’t have to do it alone. There are a few things to keep in mind as you get started on your journey to homeownership, so let’s get started.

Pre-Qualify

There are many programs available that can help people with different financial backgrounds buy homes. Whether your credit score is perfect or less-than-perfect, you may be able to pre-qualify for a mortgage (and you can do it on your own—all you need is a computer and an internet connection)!

Contact Local Lenders

Local lenders are an excellent resource for anyone buying a house in Maryland. They can provide personalized service and attention throughout the process, from pre-approval through closing day. They may offer special programs or incentives for buyers in your area (such as down payment assistance). Local lenders are also typically more responsive when issues arise, which can happen at any stage of the process! If you have any questions or concerns along the way, they will be there to help, giving you peace of mind throughout what can sometimes be a stressful experience.

Review Financial Standing

Reviewing your credit and financial standing is essential before starting the process of buying a home. You will want to make sure there are no red flags that could prevent you from being approved for financing. A financial review includes making sure your credit score is in good shape and that you have a steady income. Many mortgage products exist, including conventional loans, FHA loans, and VA loans. Before you start house hunting, you must provide your bank statements and review your hard credit score with your lender. Buyers with good credit typically qualify for better interest rates.

Did You Know?

Interest rates have continued to rise throughout the past year, but a borrower’s credit score remains a contributing factor for most mortgage lenders.

Receive Pre-Approval

It’s always best to receive a preapproval letter for a mortgage before shopping for your dream home. This way, you’ll know exactly how much money the lender will give you and what kind of interest rate you can expect. Additionally, you will receive information on the various grant programs, such as those community development offers by the Maryland Mortgage Program (MMP) and Maryland Department of Housing and Community Development (DHCD). Note that a few of these mortgage programs have minimum credit score requirements.

Finding the Right House

Searching for a perfect home can be daunting. There are many things to consider: location, size, price, and style. Where do you want to live? How much house can you afford? How much will your monthly payment be? Here are tips for getting started with your home search.

Contact a Real Estate Agent

Once you have been pre-qualified by the lender, it is time to find the right real estate agent. Great agents have expertise in buying and selling homes within their client’s budgets and helping first-time home buyers navigate the steps from beginning to closing. Maryland buyers should ensure their agent is licensed in their state, as real estate licenses are state-specific.

Your Realtor will arrange for you to see homes within your budget, in the right location, and with the amenities you desire. Your Realtor will also provide information on each property, such as recent sale prices and trends in the local market.

Pro Tip

Before you begin your search for a house in Maryland, it’s critical to sit down and think about the features that are most important to you. Do this by making two separate lists: “Wants” and “Needs.” Your list of “Wants” might include a large backyard for entertaining guests or a swimming pool, while your list of “Needs” might be more focused on basics such as the number of bedrooms, bathrooms, or square footage.

Offer Preparation

If you’re like most people, preparing an offer letter after a week-long house hunt fills you with dread, especially in a seller’s market! Not to fear; with a bit of preparation, you can be ready to submit an offer that will get the seller’s attention. Below are some tips to get started.

Comparable Property Review

Real estate agents review comparable sales in the area before recommending offer prices to their clients; this can help the buyer to understand what similar properties have recently sold for and what terms and conditions were attached to those sales. Comparable Maryland homes should be similar in style, size, and proximity. For example, a row home in Federal Hill differs greatly from a detached home in Keswick.

Buyers need to be aware of any trends in the market. For example, if homes in the area have been selling at a higher price point than usual, it may be wise to adjust one’s asking price accordingly. Additionally, be sure to take note of any special terms or conditions included in recent sale agreements.

Deposit, Down Payment, and Closing Costs

To make an offer on a home, you must be pre-approved—unless you’re paying in cash. Additionally, you will need to have earnest money available. The earnest money deposit is a deposit that shows the seller that you are serious about buying the property and will be applied toward your purchase price if the offer is accepted; in Maryland, it is typically around 1% of the home’s purchase price.

If you plan to submit an offer and are low on funds, start by saving more money for your earnest money deposit by setting aside money each month into a savings account or using funds from another source, such as your tax refund or birthday gifts. Once you have saved up enough for the deposit, contact a real estate agent to get started with your offer!

Offer Submission and Acceptance

The final step towards ratifying a contract with a seller is to submit your offer. Offer submission includes reviewing the deal’s pricing, delivery terms, and other vital aspects. Once you have reviewed and understood the terms of the contract, you will need to sign it.

After your offer has been submitted, signed, and returned, the sale can proceed. For a document to be ratified in Maryland, both parties must sign. If any changes need to be made to the contract after it has been ratified, they must be made in writing and signed by both parties before they can take effect.

Obtaining Financing

If the seller accepts your offer, you will need to begin working with your lender to apply for financing. Your lender will give you an idea of how much money you’ll need for a down payment and closing costs, as well as what your monthly mortgage payments will be once you close on the property.

Did You Know?

The Maryland Mortgage Program (MMP) offers a program called SmartBuy that forgives up to $50,000 in student debt for qualified home buyers.

Mortgage Application

A mortgage application is a document submitted by an individual to a lender to obtain a loan to purchase real estate. The application will generally include the applicant’s name, contact information, income, assets, and liabilities. You will then need to collect the required documentation, such as pay stubs and tax returns.

Loan Commitment

You’ve been approved for a mortgage! Congratulations, you’re now on your way to becoming the proud owner of a home. But before you can start packing your boxes and moving in, there’s one more hurdle to clear: the loan commitment.

A loan commitment is a formal offer from a lending institution to provide financing for a borrower. The mortgage terms are typically outlined in writing and may include the interest rate, pay schedule, fees, and other conditions. This commitment is often contingent on the borrower meeting specific criteria, such as putting up collateral or completing milestones. The lending institution will likely offer to finance your purchase if you meet the terms laid out in the loan commitment.

Home Inspections

If you’re buying a home, the last thing you want is to be surprised by expensive, necessary repairs. That’s where an inspection comes in. A home inspection is an examination of the physical condition of a house, usually conducted by a professional inspector. Here’s the process in Maryland:

Schedule Home Inspections: 

A home inspection aims to assess the property’s condition and identify potential problems. Inspections are commonly conducted before a sale or transfer of ownership. They can also occur for other reasons, such as when considering purchasing a new home or renewing an insurance policy. Inspections are typically scheduled in advance and take place during regular business hours. The inspector will arrive at the property and visually examine the exterior and interior, including all accessible areas such as attics and crawl spaces. The inspector will then prepare a report detailing their findings for your review. 

Inspection Results

If significant issues arise during your inspection, it is up to the buyer or seller to decide how to proceed (real estate agents are an excellent resource for reviewing options regarding repair negotiation). Under some circumstances, repairs occur before finalizing the sale; in others, a price adjustment reflects the repair cost; in others, the deal falls through entirely. It is important to remember that inspectors are not responsible for making decisions about fixing any problems they find – that is up to the users of their services. 

Loan Processing

The loan process can be daunting, especially if you’re unfamiliar with all the steps involved. But understanding how loans are processed can help simplify things and ensure you’re getting the best deal possible.

Order Appraisal

If you are planning to request that your lender order the appraisal, it’s essential to understand that the appraiser’s objective is to protect the lender’s interests. Also, be prepared to pay for the appraisal yourself. The payment amount will vary depending on factors such as the location and size of your home. Typically, an appraisal costs $300 – $600 for a typical house in Maryland.

Appraisal Results

The appraisal results are then shared with your mortgage lender, who will then determine how much they are willing to lend you. The results can also be leveraged in negotiations with the seller if the appraisal returns lower than expected.

There are a few options if the appraisal value is lower than the agreed-upon purchase price. One is to bring more cash to the closing over the appraised amount. Another option is to negotiate with the seller for a lower price. Depending on the contract terms, the seller may have to match the appraised value to keep the buyer from exiting the contract. Great listings with multiple offers (in a seller’s market, for example) may be more challenging to negotiate.

Loan Underwriting

Now that the property has been appraised, it’s time for the lender to begin underwriting the loan. Ensure you have your most recent pay stubs when applying for a loan. Lenders will want proof of your income to determine how much they’re willing to lend you. They may also ask for tax returns or other financial documents if you’re self-employed or have other complicated financials.

In addition to proving your income, mortgage lenders will also want an accurate picture of your debt situation. Be prepared to provide statements from your current creditors, including credit cards, car loans, and student loans. All of these, and other factors, can change the closing costs you have to pay and how high your mortgage payment will be.

Title Order

Before settlement, you’ll need to speak with a representative who will help you finalize the details of your home purchase. They’ll go over items such as financing and insurance options and answer any questions you have about the closing process. 

Schedule Settlement

A title home settlement company handles all the paperwork and financial details related to the purchase. Their tasks include working with the buyer, seller, real estate agent, lender, and title agent to ensure that everything is delivered correctly and on time. The company will also coordinate with the title insurance company to ensure the policy is in place and paid. If using a grant or down payment assistance program, inform your agent and settlement company.

Inform the Settlement Company

You must provide a contract copy to the settlement company when buying a house. The contract will outline the terms of the sale, including the purchase price, settlement date, and other critical details. The settlement company will use this information to conduct a title search and prepare for payment disbursement. Once you have provided a contract copy to the settlement company, they can begin work. 

Title Insurance

When you purchase a home, you will have the opportunity to buy title insurance. Title insurance protects your interest in your home if someone else claims ownership of the house or there is an outstanding lien against it. 

In Maryland, most buyers choose between basic and extended title insurance policies. Basic policies only insure claims arising from events before you purchase the policy, and extended coverage includes protection against certain risks, such as forgery, fraud, or undisclosed easements. The cost varies depending on the value of your home and the type of policy you choose.

Be sure to compare rates from different companies before selecting a provider. A title company based in your local region may have better knowledge of government programs.

Home Insurance

Homeowners insurance protects your most valuable asset – your home. If something happens to your home, like a fire or a burglar breaking in, you’ll be glad you have it before moving in!

It is always a good idea to insure your Maryland home, which lenders almost always require. Note the distinction between this and Private Mortgage Insurance (PMI), which only insures the loan. There are many reasons for this, but the main one is that you can get help if something happens to your home.

Insurance Company

The first step is to choose an insurance company. You can search online, check with your current insurance company, or talk to a broker. Once you have found a few promising companies, the next step is to compare their rates. After comparing rates, it’s time to purchase your policy. You will need to provide personal information and details about your home to get a quote.

Insurance Coverage Date

The coverage date is when the home insurance company policy becomes effective; this should be by the day of settlement. Check with the company you already use to see their effective policy dates so you can plan accordingly. If you’re buying a new house and already have homeowners insurance through another provider, contact them about changing coverage once escrow closes and ownership transfers officially—you don’t want any gaps in protection!

Loan Approval

The loan approval process finalizes all documents necessary for closing. Once the approval process is complete, borrowers can move to the final steps outlined below! Clear to Close

“Clear to close” (CTC) is a term used in the mortgage industry that indicates that all loan conditions have been satisfied and that the loan is ready to be closed. When the mortgage lender has received all required documentation from the borrower, including a signed purchase agreement, appraisals, and inspections, they will issue CTC.

It’s important to note that even though a lender may issue a clear-to-close letter, there are still potential risks involved in the closing. For example, if an appraisal comes back lower than expected or there are issues with the title search, these could delay or even nullify the transaction.

Closing Disclosure (CD)

A Closing Disclosure is a document that outlines the final terms of your mortgage loan. It includes information about the loan amount, interest rate, closing costs, and other essential details. The CD must be provided at least three days before your loan closes to give you time to review the terms of your loan and compare them to any other offers you may have received.

Ask your mortgage lender or real estate agent for clarification if you have any questions about the Closing Disclosure or closing costs. Closing costs, including applicable property taxes, will also be recorded on the ALTA following settlement. Be sure to bring complete and certified funds (which includes your down payment, typically sent via wire or cashier’s check) to closing, which we will discuss in the next section.

Settlement

When you buy a property, the settlement date is when you become the proud owner of your new home. But what happens on settlement day? Here’s a look at what goes down:

Pro Tip

Are you worried about assessments increasing your property taxes? Maryland residents living in an owner-occupied property for over one year can apply for the Homestead Tax Credit to limit tax increases on real property.

Meet Notary at Settlement

During the meeting, your settlement officer will review all the documents you must sign to complete the sale. They will also explain any fees associated with the mortgage loan and answer any questions you have about them. Lastly, your settlement officer will talk to you about when and how you need to make your monthly payments and first-time buyers’ property tax exemptions.

Sign, Receive Keys, and Move In!

Settlement is when the ALTA, loan documents, title insurance, and other applicable mortgage documents are notarized. All funds, including down payment and closing costs, are exchanged between buyers and sellers. Following this settlement, you’ll be given keys to your home!

How to Buy a House in Maryland – Key Takeaway

There are many considerations when buying a house in Maryland. A key takeaway is this: think about your budget, your needs and wants, and the home’s location, be aware of the different types of mortgages available and choose the one that best suits your situation. With so many factors to consider, it’s worth consulting a professional to assist. Contact us today to get started!