Your Guide to Buying a Home in Maryland
- In the state of Maryland, the homebuying process is similar to other states where an attorney or title-company representative oversees the process. This professional also prepares closing documents.
- Real estate transactions can be closed by an attorney or title agency.
- The buyer and seller will complete the transaction together at the same table.
- Termite inspections are common in Maryland, which has its own environmental features.
Phase 1: Negotiations, Inspections, and Disclosures
Once you find a home that you wish to purchase, the negotiations and disclosures phase will be launched.
- You’ll need to have an offer accepted for your Maryland purchase.
- The earnest money will be deposited into an escrow account.
- The contract is signed and sent to an attorney or title company. It is never given directly to the seller.
- The buyer now reviews the information and signs off on any disclosures. These disclosures are simply statements of known defects or issues with the home.
- The buyer can now perform inspections on the property, including general inspections and inspections for termites, mold, and other problems. In the state of Maryland, this section is usually an addendum that will cover possible inspections. The types will vary by property and the specific situation, and not all buyers will perform a long list of inspections.
- Negotiations will now begin based on the inspections and the disclosures. The buyer can walk from the contract, accept the house as-is, or propose a change to the contract. In turn the seller and the buyer will negotiate until they reach an agreement.
- The buyer can now negotiate a home warranty, although this is not always needed and many sellers will reject funding a home warranty, which covers repairs for a certain period.
Phase 2: Securing Your Home Loan in the State of Maryland
In the state of Maryland and across the country, most people will need a home loan, called a “mortgage” to make the purchase. The process is fairly simple, but it can take a long time. Therefore, it’s best to start the process as early as possible.
- The first step is to submit a loan application. This can be done independently or with the help of a real estate professional.
- In roughly three days, the lender will provide a document called a “Good Faith Estimate.” This is simply an estimate, usually with a cost breakdown, of the overall cash you will need to close the deal. Lenders try to make this as accurate as possible but the final cost may be different.
- Before the lender can make a final decision, they will need to review your financial situation. Lenders require a variety of information, including:
- Bank statements for all accounts you own.
- Information on outstanding loans and debts.
- Tax returns for the past two years. In some cases the lender will ask for more.
- Pay stubs and other income documents.
- Any disclosures that are important to your financial situation. This may include marriage licenses, divorce decrees, child support, bankruptcies, and legal judgements. This should include payments you make as well as payments you receive.
- Written explanation of recent credit inquiries. Credit inquiries, statistically speaking, increase your chances of taking on new debts, which could impact your mortgage application. Lenders will need information on these inquiries.
- Information on any large deposits that are outside of your regular income. If you have received a gift, the lender may request a gift letter. This gift letter should outline the nature of the gift, the relationship between the giver and borrower, and verify that the money is not a loan and will not need to be repaid.
- Repeat documents for any of the above. Remember that anything can happen between initial pre-qualification and final approval, so lenders may ask for repeat or updated information. Lenders require as much information as possible, so don’t be offended if they need more documents.
4. Now the lender can make a preliminary decision. If you are approved, you will receive an approval letter. However, there will likely be contingencies such as an appraisal.
5. If all goes well and the appraisal comes through, the lender will issue a loan commitment letter. This is essentially a final commitment, but it’s still contingent on there being no changes to your financial situation.
6. The financing contingency can now be removed. If the borrower is unable to secure a loan, an extension may be granted, provided they have made efforts towards financing and there is a good chance that financing will be granted eventually. (If there is little hope for financing, the purchase in Maryland may be cancelled.)
7. An appraisal for the Maryland real estate will be ordered. Appraisals are important to lenders, as they want to know that the home they are lending against has significant value. (Lending a large amount against a home with less value creates more risk to the lender.) If the appraisal comes in lower than expected, adjustments to the loan or the purchase agreement may be needed.
8. As a final measure for the loan, homeowners insurance will need to be ordered. Proof of this insurance is usually provided to the lender.
As we noted above, this phase takes time. Therefore, it’s best to start as early as possible so you can complete the transaction quickly and deal with any complications right away.
Phase 3: Closing the Purchase
Now it’s time to close the deal. In Maryland, the buyer and seller will meet together at the same table to sign documents and finalize the transaction.
- The first step in Maryland is to perform a title search, which will verify that the home can be sold and there are no conflicts with ownership. If there are conflicts, such as family claims to the property, these need to be settled before the final closing date.
- A final cash figure for what the buyer needs in closing costs will be calculated. This will include the downpayment, fees, and other expenses, and a cashier’s check is usually required.
- A final walkthrough is performed to make sure the property is still in good condition and there has been no damage since last seeing the home.
- A closing will need to be scheduled. This will be the moment when all parties get together and sign the documents to complete the transfer of ownership.
- The buyer will now pay their remaining funds.
- The attorney or representative will now record the transaction with the appropriate municipality, such as the city or county.
- The buyer can now receive the keys to their new property and enjoy their Maryland home!
Maryland Conforming Loan Limits
Conforming loans across the country are determined by the Federal Housing Finance Agency. This federal office sets the limits for government-backed loans, determining the amount on a county-by-county basis. Most of the country is under the base limits, but in certain high-price counties, the limits are raised.
Throughout much of the state, the limit for a single-unit property is $548,250. For a two-unit property, the conforming limit is $702,000, while the limit for a three-unit is $848,500. If you want a four-unit home in Maryland, the limit is $1,054,500.
In Maryland, there is a small group of counties surrounding the Washington, D.C. area that have higher limits. These counties include Calvert, Prince George’s, Charles, Montgomery, and Frederick. In these counties, the limit for a single-unit home is lifted to $822,375. For a two-unit property, the limit is $1,053,000. If you want to purchase a three-unit property in one of these Maryland counties, the limit for a conforming loan is $1,272,750 and a four-unit has a limit of $1,581,750.
These are the limits for conforming loans only. If you need a larger loan for your Maryland purchase, there are options such as jumbo loans.