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 premium, so make sure you have cash saved up not only for a down payment but for closing costs too.
Closing costs are an out-of-pocket expense you’ll pay the day you close on your new home. These costs consist of fees homebuyers are charged for during the homebuying journey, from applying for a mortgage to getting the property appraised and inspected. Various taxes and insurance premiums can be included in the closing costs tab too. All in, closing costs typically amount to 2 percent to 5 percent of the home’s purchase price.
Because closing costs and customs vary by state, here’s a look at what you can expect to pay in Maryland, what’s typically included on your bill and how you can potentially lower these costs.
How Much Are Closing Costs in Maryland?
Homebuyers in Maryland, brace yourselves: The state has some of the highest closing costs in the country, at an average of $3,476 for a home priced at $284,136, according to a 2021 report by ClosingCorp, which researches residential real estate data. That makes up 1.22% of the home price.
ClosingCorp ranked Maryland ninth for states with the highest closing costs, in between Texas and California. For comparison’s sake, the national average is $6,087. In New York, average closing costs are $8,256, while on the other end of the spectrum, Missouri has some of the lowest closing costs at just $1,290.
Maryland homebuyers should plan to save much more on closing costs than this initial estimate. That’s because ClosingCorp’s data excludes common closing costs expenses, such as loan origination fees and private mortgage insurance for buyers putting down less than 20 percent.
Like in much of the country, home prices in Maryland have increased: As of September 2021, the median price for homes sat at $370,000 while the average sales price was $428,342, according to Maryland Realtors. With these updated figures in mind, closing costs could be somewhere between $7,400 and $21,400.
Keep in mind, closing costs will fluctuate greatly depending on the price of your home and the complexity of the sale.
What’s Typically Included in Maryland’s Closing Costs?
Typically, closing costs can be divided into three categories: property-related fees, mortgage-related fees and annual fees. Let’s look at some of the common closing costs you’re likely to incur in Maryland, including the state-specific details you’ll need to watch out for:
If you need a home loan to help you with your purchase, your first stop in the homebuying process will be to a lender. These are some of the lender fees you might need to pay:
Loan Origination Fees
These fees are charged for the work involved with preparing your mortgage, from the application to producing preapproval letters for your house hunting and processing your funding at closing.
Estimate this fee to be about 0.5 percent to 1 percent of your loan amount.
Credit Report Fees
During the underwrite, your lender needs to check your credit report to see how you’ve managed debts in the past. They’ll charge you for the fees involved with requesting your credit report from the various credit reporting bureaus. If more than one borrower is on the loan application, double this cost.
Private Mortgage Insurance
Homebuyers who don’t provide a 20 percent down payment must buy private mortgage insurance, or PMI. With PMI, lenders will qualify homebuyers for a home loan even if they put down only 5 percent to 19.99 percent. While you’re paying for the insurance, PMI protects your lender in case you default on your loan. Once you hit the 20 percent mark in home equity, you don’t have to pay for PMI anymore.
PMI usually ranges from 0.25 percent to 2.25 percent of your outstanding loan balance.
Under Maryland Code and Court Rules, you’ll need an attorney to help with certifying documents, such as your deed, mortgage, or deed of trust. Attorneys often review the property’s title search, too, or you may want an attorney to handle other aspects of the closing process such as preparing your documents.
Legal fees will vary, depending on how complicated your home sale is and where you are in the state.
You may decide to hire a title company to carry out several jobs, including holding onto your earnest money deposit, payment for various fees, and your down payment in an escrow account. These monies won’t be released until the ink is dry on your home purchase.
Escrow fees, also called closing fees, are usually paid for by the buyer in Maryland.
Before you make the single biggest purchase of your life, you’ll need to hit some pivotal checkpoints to make sure your new home is a sound investment.
Title Search and Title Insurance
A title insurance company will check that the title to the property you’re buying is free and clear from other claims to ownership, unpaid taxes, or outstanding lawsuits. In some cases, you’ll need to order a title search separately, then buy title insurance for added protection in case anything’s missed.
In Maryland, you can buy an owner’s policy — for you, the buyer — alongside a lender’s title insurance policy. This is called “simultaneous title insurance,” and usually comes with a discount, according to the Maryland Insurance Administration.
Buyers are typically on the hook for this expense. This type of insurance is a one-time expense and the policy is in effect until you sell the property.
Real Estate Transfer Tax
Whenever a home transfers 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 come across county transfer taxes, depending on where you’re moving to. 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 purchase price of the home.
In addition, your municipal recording office may charge a fee for recording the transfer of the deed in public records.
Your lender will send a third-party appraiser to your potential buy to make sure it’s priced appropriately. If you default on your home loan, your lender needs to know it can sell the property to recoup its losses.
Your lender gets their pick for an appraiser, but you’ll foot the bill.
Before finalizing the home sale, you’ll need the green light to proceed with your purchase from a home inspector. The inspector’s job is to ensure you’re buying a property that’s in great condition, from the foundation to the roof and everything in between. They will also zero in on any issues you may want to flag to the seller to negotiate repairs or reductions in price.
You can shop around for a home inspector, so price points will vary depending on where you’re located in the state and how big your home is.
Your closing costs will include a handful of fees you’ll need to start paying annually. The trio of closing cost expenses below are all prepaid, which means they must be paid for in cash at closing and can’t be rolled into your home financing.
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 taxes levied in the county you’re moving to.
Count on paying for property taxes annually each July.
The first year of coverage for your homeowner’s insurance policy must be paid for and in effect at closing. This is a typical requirement before your lender issues the funding to buy your home.
Don’t skimp out on home insurance. It’ll cover any physical damage to your home caused by fire, wind, vandalism or theft. You may even need to buy additional policies for your home depending on what you need insured.
Homeowner’s Association Fees
One-quarter of homeowners in Maryland are part of a homeowner’s association (HOA). Based on these stats, there’s a chance you may have to pay for HOA fees in your closing costs.
HOA fees cover the cost of trash removal, security and community amenities, such as fitness centers and community parks.
When you’re house hunting, make sure you ask about HOA fees upfront so you know how much you may be spending on this cost.
How Can I Lower 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 up for. If you’re looking for ways to lower your overall closing costs bill, here are some key strategies to consider.
Closing Cost Assistance
Do your research on Maryland’s homeownership assistance programs, which offer grants and zero percent interest loans help homebuyers come up with the cash for a payment and closing costs.
The Maryland Mortgage Program runs the statewide program, and you can find local programs in counties such as Howard, Montgomery, and Baltimore.
Get Your Finances in Shape
When you’re shopping for a home loan, your aim is to secure the lowest interest rate on offer to help you save cash over the lifetime of your mortgage.
Show lenders you’re a low-risk borrower — make sure you have an excellent credit score, stay away from late or missed payments on your existing debts, and pay down your debts to keep your debt-to-income ratio low.
Try to save as close to the 20 percent down payment threshold. This way, you’ll have less to pay in PMI.
If you have an established relationship with your lender, you can try to negotiate the removal of some fees for setting up and processing your loan. The most obvious charges you can try to eliminate are rate lock fees, loan processing fees, and broker rebates.
You can also ask your lender to stagger these costs during the homebuying process.
Do your research when you’re shopping for a lender, title company, or home inspector. You can even obtain quotes from different service providers to compare which offers the best deal. Don’t just focus on the bottom line, though: Make sure your service providers are properly accredited with glowing reviews from past customers.
Check out referrals from your lender or title company, too. They could have go-to professionals on hand that they’ve approved with discounts for referrals.
If you’re in a buyer’s market, don’t shy away from negotiating some compromises with the seller. You could, for example, submit a full-price offer on a home with a caveat that the seller covers all the closing costs. Or you could ask your builder to pay a portion of your closing costs so you can free up cash for upgrades on a new-build home.
Adding Closing Costs to Your Home Financing
Homebuyers can roll some of their closing costs into their home loan, so they’re paid for as part of their monthly mortgage payments instead of as a lump sum on closing day.
Keep in mind, you’ll end up paying interest on your closing costs across the lifetime on your loan. Prepaid expenses, such as property taxes and homeowner’s insurance, can’t be rolled into home financing either.
With a “no-closing-cost” mortgage, your lender agrees to pay for part, or all, of your closing costs. In turn, you pay a higher interest rate on your mortgage.
Run some calculations before you decide that this is the best route for your bottom line. In the long run, this could cost you more money because of the bump in your interest rate.
Carmen Chai is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. For NewHomeSource, Carmen covers a variety of topics, including insurance, mortgages, and more.