With its charming suburbs and small towns, natural forests and sandy beaches, and proximity to D.C., Philadelphia, and New York City, it’s hard to beat life in Maryland. But moving to the Free State comes at a high cost, so make sure you have cash saved not only for the down payment but also for closing costs.
Closing costs are an out-of-pocket expense that you will pay for the day you close your new home. These costs consist of the fees charged to homebuyers during the home buying process, from applying for a mortgage to appraisal and inspecting the property. Various taxes and insurance premiums can also be included in the closing costs tab. In general, closing costs typically amount to 2 percent to 5 percent of the home purchase price.
Because closing costs and customs vary by state, below is what you can expect to pay in Maryland, what’s usually included in your bill, and how you can reduce these costs.
How much are the closing costs in Maryland?
Maryland homebuyers, be prepared: The state has some of the highest closing costs in the country, averaging $3,476 for a home priced at $284,136, according to a 2021 report from ClosingCorp, which researches residential real estate data. That represents 1.22% of the price of housing.
ClosingCorp ranked Maryland ninth among states with the highest closing costs, between Texas and California. For comparison purposes, the national average is $6,087. In New York, average closing costs are $8256, while at the other end of the spectrum, Missouri has some of the lowest closing costs at just $1290.
Maryland homebuyers should plan to save much more on closing costs than this initial estimate. That’s because ClosingCorp data excludes common closing cost expenses such as loan origination fees and private mortgage insurance for buyers who pay less than 20 percent.
Like much of the country, home prices in Maryland have risen: In September 2021, the median home price was $370,000, while the median sales price was $428,342, according to Maryland Realtors. With these updated figures in mind, closing costs could range from $7,400 to $21,400.
Keep in mind that closing costs will fluctuate greatly depending on the price of your home and the complexity of the sale.
What is typically included in Maryland’s closing costs?
Typically, closing costs can be divided into three categories: property-related charges, mortgage-related charges, and annual fees. Let’s look at some of the common closing costs you’re likely to incur in Maryland, including state-specific details you’ll need to consider:
Mortgage-related charges
If you need a mortgage loan to help you with your purchase, your first stop in the home buying process will be a lender. Here are some of the lender fees you might have to pay:
Loan Origination Fees
These fees are charged for work related to preparing your mortgage, from applying to producing pre-approval letters to your home search and processing your financing at closing.
Estimate that this fee is about 0.5 to 1 percent of your loan amount.
Credit Report Fees
During underwriting, your lender should check your credit report to see how you have handled debts in the past. You will be charged fees related to applying for your credit report to the various credit reporting agencies. If there is more than one borrower on the loan application, double this cost.
Private Mortgage Insurance
Homebuyers who do not provide a 20 percent down payment should purchase private mortgage insurance or PMI. With PMI, lenders will qualify homebuyers for a mortgage loan even if they make a down payment of just 5 percent to 19.99 percent. While paying for insurance, PMI protects your lender in the event of default on your loan. Once you reach the 20 percent mark on home equity, you no longer have to pay the PMI.
The PMI typically ranges from 0.25% to 2.25% of your outstanding loan balance.
Legal costs
Under Maryland Code and Judicial Rules, you will need an attorney to help you with certifying documents, such as your deed, mortgage, or deed of trust. Attorneys often also review the search for title to the property, or you may want an attorney to take care of other aspects of the closing process, such as preparing your documents.
Legal fees will vary, depending on how complicated the sale of your home is and where you are in the state.
Escrow Fees
You may decide to hire a title company to carry out various jobs, including holding your security deposit, paying various fees, and your down payment into an escrow account. This money will not be released until the ink dries on your home purchase.
Escrow fees, also called closing fees, are usually paid by the buyer in Maryland.
Fees related to the property
Before you make the biggest purchase of your life, you’ll need to go through some critical checkpoints to make sure your new home is a good investment.
Title search and title insurance
A title insurance company will verify that the title to the property you are buying is free and free of other property claims, unpaid taxes, or pending judgments. In some cases, you’ll need to request a separate title search and then purchase title insurance for extra protection in case something is lost.
In Maryland, you can purchase a homeowner’s policy, for you, the buyer, along with a title insurance policy from the lender. This is called “simultaneous title insurance” and usually comes with a discount,according to the Maryland Insurance Administration.
Buyers are usually hooked on this expense. This type of insurance is a one-time expense and the policy is in effect until you sell the property.
Transfer Tax
Every time a home is transferred hands, buyers and sellers incur a real estate transfer tax. In Maryland, the state transfer tax is 0.5 percent, or 0.25 percent for first-time homebuyers.
You may find county transfer taxes, depending on where you move. Calvert County, for example, has no local transfer taxes, while Harford, Howard and Montgomery counties have a transfer tax rate of 1 percent of the home’s purchase price.
In addition, your municipal registry may charge a fee for the registration of the transfer of the deed in public records.
Property appraisal
Your lender will send an outside appraiser to your potential purchase to make sure it’s priced properly. If you default on your mortgage loan, your lender needs to know that you can sell the property to recoup your losses.
Your lender chooses an appraiser, but you will foot the bill.
Property Inspection
Before finalizing the sale of the home, you will need the green light to proceed with your purchase of a home inspector. The inspector’s job is to make sure you’re buying a property that’s in great condition, from foundation to roof and everything in between. They will also focus on any issues you want to point out to the seller to negotiate repairs or price reductions.
You can shop around for a home inspector, so price points will vary depending on where you are in the state and how big your home is.
Annual fees
Your closing costs will include a handful of fees that you’ll need to start paying annually. The trio of closing cost expenses below are all prepaid, meaning they must be paid in cash at closing and cannot be transferred to your home financing.
Property Taxes
In Maryland, homeowners pay, on average, 1.04 percent of their home’s assessed market value in property taxes, according to the Tax Foundation, a decades-old tax policy nonprofit. The precise rate will vary, depending on the taxes collected in the county you move to.
Expect to pay property taxes annually each July.
Homeowners Insurance
The first year of coverage of your homeowners insurance policy must be paid and current at closing. This is a typical requirement before your lender issues the funds to purchase your home.
Don’t skimp on home insurance. It will cover any physical damage to your home caused by fire, wind, vandalism, or theft. You may even need to purchase additional policies for your home depending on what you need to insure.
Community of owners fees
A quarter of homeowners in Maryland are part of a homeowners association (HOA). Based on these statistics, there is a chance that you will have to pay HOA fees on your closing costs.
HOA fees cover the cost of trash collection, security, and community services such as gyms and community parks.
When you’re looking for a home, be sure to ask about HOA fees upfront so you know how much you may be spending on this cost.
How can I reduce my closing costs in Maryland?
Between the down payment and those new furniture purchases, the last thing you need is another big expense to save for. If you’re looking for ways to reduce your overall closing cost bill, here are some key strategies to consider.
Closing cost assistance
Research Maryland’s homeownership assistance programs, which offer grants and zero-percent interest loans that help homebuyers get the cash for a payment and closing costs.
The Maryland Mortgage Program runs the program statewide, and you can find local programs in counties such as Howard, Montgomery and Baltimore.
Get your finances in shape
When you look for a mortgage loan, your goal is to secure the lowest interest rate offered to help you save cash for the life of your mortgage.
Show lenders that you are a low-risk borrower: Make sure you have an excellent credit score, stay away from late or late payments on your existing debts, and pay off your debts to keep your debt-to-income ratio low.
Try to save as close to the 20 percent down payment threshold as possible. This way, you’ll have less to pay in PMI.
Negotiate rates
If you have an established relationship with your lender, you can try negotiating the elimination of some fees to establish and process your loan. The most obvious charges you can try to eliminate are rate-setting fees, loan processing fees, and broker repayments.
You can also ask your lender to stagger these costs during the home buying process.
Comparison Store
Do your research when looking for a lender, title company, or home inspector. You can even get quotes from different service providers to compare which one offers the best deal. Don’t focus just on the bottom line, though: make sure your service providers are properly credited with rave reviews from previous customers.
Also check the references of your lender or title company. They could have reference professionals on hand that they have approved with referral discounts.
Concessions from the seller
If you’re in a buyer’s market, don’t hesitate to negotiate some compromises with the seller. You could, for example, submit a full-price offer on a home with the caveat that the seller covers all closing costs. Or you can ask your builder to pay a portion of your closing costs so you can free up cash for improvements to a newly built home.
Adding Closing Costs to Your Home Financing
Homebuyers can pass on some of their closing costs to their mortgage loan, so they are paid as part of their monthly mortgage payments rather than a lump sum on closing day.
Keep in mind that you will end up paying interest on closing costs over the life of your loan. Prepaid expenses, such as property taxes and homeowner’s insurance, also cannot be incorporated into housing financing.
Mortgages with no closing cost
With a “no closing cost” mortgage, your lender agrees to pay some or all of your closing costs. In turn, you pay a higher interest rate on your mortgage.
Run some calculations before deciding that this is the best route for your end result. In the long run, this could cost you more money because of the increase in your interest rate.