What to Know About Buying a House in Maryland

The Old Line State is a great place to live for many reasons. Before house-hunting, make sure you set a strict budget and maintain a good credit score.
Written by Matt Terzi
Reviewed by Melanie Reiff
Maryland
is one of the wealthiest states in America, so buying a house here can require a lot of prep work. The most important thing to do before buying in the Old Line State is to evaluate your finances and set a reasonable budget. 
It’s no small wonder then that so many people consider buying a house in Maryland, including some of DC’s most powerful movers and shakers. But buying a new home can be an overwhelming process, whether you’re in Maryland or Arizona.
That’s why the
home and car insurance
broker app
Jerry
has put together this helpful home buying guide. We’ll walk you through everything you need to know about buying a house in Maryland to help prepare you for this monumental milestone in your life.
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Figure out your finances

Buying a home is a major financial investment. Even if you just won the lottery, you’d still need to comb through your finances and figure out precisely how much you can put toward buying your new house. 
Begin by evaluating your finances, including bank statements, credit ratings, and your debt-to-income ratio. 

Check your credit score

Your very first step should be to check your credit score, which is a key factor in securing a conventional mortgage. 
To buy a house in Maryland, you’ll want a credit score of 620 or higher. If your credit score isn’t quite there yet, don’t worry—you still have options.
You might also qualify for a Federal Housing Administration (FHA) or Veterans Administration (VA) mortgage with a lower credit score.
An FHA mortgage only requires a credit score of 523. Veterans, active service members, and eligible surviving spouses can qualify for a VA mortgage with a credit score of 500.
No credit isn’t good credit—if you have no credit history, now is the time to establish some. Getting one or two secured credit cards and taking out a car loan (for which you may need a cosigner) can go a long way toward establishing your credit.
Otherwise, buying a home might be off the table until you’re able to establish a better credit score. Try increasing your score by paying off your account balance, making payments on time, and eliminating extra sources of debt. 
MORE: What is a good credit score for a car loan?

Calculate your debt-to-income (DTI) ratio

Banks are going to take a hard look at your DTI (debt-to-income) ratio, too. Take some time to figure out your current DTI and compare it to what it needs to be for you to buy a house.
Begin by calculating your gross monthly income, or how much you’re earning per month before taxes. Then, add up all your monthly debt, which may include:
  • Rent or mortgage payments
  • Car payments 
  • Monthly credit card payments
  • Student loans
  • Alimony, child support payments, and/or legal settlements you pay every month
Divide the sum of your monthly debt by your monthly income (expense / income).
For example, if your income was $6,400 per month and your expenses were $1,800 per month, your DTI would equal 28 percent (1,800 / 6,400 = 0.28).
You’ll need a DTI of 36 percent or lower to secure most mortgages in Maryland. You can still sometimes get a mortgage with a higher DTI, but anything above 50 percent means you’ll have a hard time paying for your everyday expenses in addition to a mortgage.

Determine your down payment 

Another big component of how much home you can buy is the down payment you can make. Most mortgages will require a down payment of 20 percent.
If 20% of the house’s cost isn’t feasible, again consider an FHA or VA mortgage if you’re eligible. 
You can secure an FHA mortgage with a down payment as low as 3.5 percent if your credit score is 580 or higher. VA loans are often available without a down payment and make you eligible for lower closing costs and interest rates. 

Prepare for closing costs and other fees

“Closing costs” are a bunch of smaller fees cobbled together into one big expense. Closing costs typically include the cost of: 
  • Home appraisal 
  • Home inspection
  • Credit report 
  • Mortgage origination and insurance
  • “Earnest money” (a good-faith deposit applied to your down payment)
  • Property taxes
  • Homeowners insurance
Closing costs typically add up to 2-5% of the home’s selling price. Given that the average house in Maryland costs $330,332, your closing costs could range from $6,607 to $16,517.
Maryland has some of the highest closing costs in the United States. Homebuyers in Maryland spend an average of around $11,700 in closing costs.
Closing costs are considered out-of-pocket expenses not covered by your mortgage. So you’ll need to take these costs into consideration when calculating how much you’re saving toward buying a home.
Key Takeaway Be sure to take a look at the property tax rate in the county where you’re considering buying a house in Maryland. That’s going to play a huge role in determining your closing costs.

Look for homeowners insurance

Homeowners insurance is required by most mortgage lenders. They see your new home as an investment and want to make sure you keep it protected. 
It’s a good idea to have home insurance even when you’ve paid off your mortgage, as it can go a long way toward protecting your home and your belongings.
American homeowners spend an average of $115 per month, or $1,387 per year, on homeowners insurance. That’s going to factor into your closing costs, too. So it’s always a wise decision to shop around and look at as many quotes as possible.
This is where the
Jerry
app can really help you out. Jerry will find you the cheapest quotes available for your coverage level so you can save money and time on your insurance.
Key Takeaway You won’t be able to secure a mortgage without a good credit score, debt-to-income ratio, and money for a down payment and closing costs. 

Get preapproved for a mortgage

Once you’ve got your finances in order, it’s time to get preapproval for a mortgage. Many sellers won’t show you a property until you have a preapproval letter, so this is a critical step you don’t want to skip.
Don’t start the preapproval process until you’ve saved enough money for the downpayment and closing costs and you’re confident your credit score and DTI ratio are on point.
A mortgage lender will require data and records including:
  • Social Security number and proof of identification
  • Employment history
  • Proof of income (pay stubs)
  • Proof of assets (bank statements reflecting you have ample savings)
  • Your credit score, which they’ll find through an independent search
Once the lender has everything they need, they’ll run a hard credit check, which will put a small ding on your credit score. That’s going to affect your credit score for two years, so don’t enter the process prematurely.

How to pick the right mortgage in Maryland

There are two key numbers to look at when considering mortgage lenders in Maryland or anywhere else: the mortgage term and the interest rate.
The mortgage term denotes how long it will take to pay off your mortgage. This is commonly a period of 15 years or 30 years. The 30-year mortgage term is the most popular in the US, though many homeowners refinance their mortgages or move before that period is over.
Longer mortgage terms will leave you with lower, more manageable monthly payments, but you also get stuck with higher interest rates. A 30-year mortgage has an average interest rate of 3.5 percent, while a 15-year mortgage comes in at 2.5 percent or even lower.
Just as with insurance, you’ll want to look into several mortgage lenders and find the best interest rates before settling on a plan. 
MORE: How to make a counteroffer after a home inspection

Look for a house

Now for the fun bit. With your finances balanced out, your credit report singing your praises, and a preapproval letter in hand, it’s time for you to start house hunting!

Pick your city or neighborhood 

When settling on a city or neighborhood, consider factors like proximity to work and family, the cost of living, quality of the schools, crime rates, climate, and more. 
Here are some interesting facts about Maryland that might help inform your decision:
  • Many Maryland residents work in Washington DC, which heats up housing markets near the nation’s capital.
  • Gaithersburg, Silver Spring, and Germantown are among the ten most diverse cities in America.
  • Baltimore is one of the most dangerous cities in America. But there are still lots of safe neighborhoods here, including Federal Hill, Locust Point, Keswick, Riverside, and South Baltimore.
You should consider the costs of
car insurance
in different areas, too. Living in a neighborhood with high traffic, high crime, and lots of accidents will generally end up spiking your insurance premiums considerably.

Buyer’s market vs. seller’s market

You’ve likely heard the terms “buyer’s market” and “seller’s market” before. They can tell you how an area’s housing market is performing at a given time.
A buyer’s market means you can typically negotiate for a lower price. Because there are more houses for sale than potential buyers in that neighborhood, the market favors the buyer.
When the market favors the seller, it’s a seller’s market. That means there are lots of potential buyers shopping in an area where housing options are limited, which gives you far less wiggle-room when haggling over prices.
Take a look at recent home sales and look at the asking price versus the final sale price. If asking prices are lower than sale prices, that neighborhood is in a seller’s market.
Another key factor here is how long a house has been on the market. If houses in a neighborhood are snatched up quickly, it’s a seller’s market. But if they’re on sale for weeks or months on end, you can assume you’re in a buyer’s market.

Find a real estate agent

You can technically buy a house in Maryland without a real estate agent, but it means more work for you. 
Real estate agents can help you navigate tricky paperwork, manage inspections, and even introduce you to the neighborhood, which is invaluable if you’re new to the area.
You’ll want to find a real estate agent who is knowledgeable about the area, has experience selling homes in that community, and communicates well with you. If they aren’t calling you back in a timely manner, find someone better!

Make an offer

Once you’ve found your home and everything is ready to go, it’s time to make an offer. Your agent should help you with the paperwork and come up with a suitable offer based on local market conditions.
Once your offer is accepted and everything has been filed and paid, you’ll move on to an exciting new chapter as a bonafide homeowner!

How to save on homeowners insurance

Owning a home is expensive. Repairs, garbage collection, water, gas, and school taxes really add up. On top of all that, home insurance premiums can feel like the straw that broke the camel’s wallet (so to speak). 
That’s where
Jerry
steps in. Jerry is a powerful comparison shopping and broker app that can save you hundreds or even thousands of dollars per year on
home and car insurance
Simply download Jerry, answer a handful of questions, and in a few minutes you’ll be looking at competitive quotes from trusted insurance providers. 
Jerry can help you
bundle your home and auto insurance
for even more savings, too. With Jerry, it’s never been easier to switch and save on insurance!
Jerry
was wonderful! I used it for my auto and renters policies. I trusted it so much that I signed up my homeowners insurance under Jerry as well. All of the agents are amazingly nice and knowledgeable.” —Mary Y.
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FAQs

You should prepare to save up around 25 percent of a house’s total costs, with 20 percent as a down payment and 5 percent for closing costs. 
With the average home in Maryland selling for $330,332, you’re looking at saving up around $82,583.
You’ll want a credit score of at least 620 to buy a home in Maryland. FHA loans are available with a credit score of 523, while VA mortgages can be acquired with a credit score of just 500.
Germantown, Spring Ridge, Temple Hills, Lutherville Cheverly, and Poolesville are frequently named among the best places to live in Maryland. 
You’ll want to come up with a solid list of places you’d consider living and then research each neighborhood to know which area suits you best.
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