The real estate industry has done a bang-up job on letting Maryland consumers know they’ll need some cash when they purchase a home. Typically, it’s the down payment that’s mentioned. Most Maryland homebuyers think they need 20% down, which isn’t even true! They end up believing they can’t buy a home in Maryland if they don’t save lots of money. So, they never take the time to see if they can, indeed, buy a home instead of continuing to pay rent. Seldom are closing costs brought up so they end up a major surprise for homebuyers. However, a responsible buyer’s agent will explain closing costs from the beginning, and work to have them minimized.
Below are other possible cash outlays you’ll need to consider:
Earnest Money Deposit
You found the Maryland home you want to buy and you and your buyer’s agent helped you structure the perfect purchase agreement. In it, you’ll find a section dealing with your “Earnest Money Deposit” (EMD), also known as “Good Faith Money”. This is an expected part of an offer to purchase a house in Maryland. It demonstrates a buyer’s seriousness in buying a particular house.
The seller will be taking the home off the market, and wants some reassurance up front. This “skin in the game” evens the playing field. The seller takes a gamble by removing the home from the market and you put your cash on the line with the possibility of losing it, under certain circumstances. However, as long as the terms of the contract are followed, it is possible to have the deposit returned if the sale falls apart.
Using a buyer’s agent when buying a home in Maryland guarantees your interests, as a buyer, are covered. Using the seller’s agent to buy a home, however, means your interests are not covered. A seller’s agent works for the seller only, and will leave a buyer out in the cold and on their own.
The amount of money used for your EMD varies according to several factors, including what type of market you’re in (in fast-moving markets, a larger-than-normal EMD may entice the seller to choose your offer). In Carroll County, the EMD is typically $1,000. Some banks who are selling a foreclosure will require as much as 1% of the purchase price. Another reason why you need a buyer’s agent to help you every step of the way.
The Down Payment
The down payment required is determined by the type of loan you use to buy a house in Maryland, Down payments are expressed as a percentage of the purchase price of the home. Down payment percentages depend upon the loan you’ll be obtaining.
Conventional loans require a minimum of 5% down. Providing 20 percent down is the best choice if you hope to avoid paying a monthly private insurance premium.Other loans, such as those through FHA or Fannie Mae, require significantly less for the down payment, while the VA and USDA require no money down whatsoever. A reliable Maryland buyer’s agent will always recommend some lenders who offer the best loan programs to meet your needs.
After your buyer’s agent helps you get a home under contract in Maryland, it is important to have some inspections completed so you know what, if any, problems are present. The most common type of inspection is a home inspection. If there is a well and / or septic system, inspections of those systems are recommended. Since radon is a leading cause of lung cancer, a radon inspection is also a great idea. Your lender will require a termite inspection. All of these inspections are paid by the Maryland homebuyer up-front, they are not paid by the seller. So, it is important to have funds available to pay for any inspections you choose to have completed. Your Maryland buyer’s agent can suggest reputable inspectors to make sure you needs are covered.
This is the part of the process that catches far too many Maryland homebuyers by surprise. Closing costs are all the fees required of everyone who helps you purchase the home. In Maryland, your real estate agent’s commission is always paid by the seller (whew! relief for Maryland homebuyers!) Items such as the appraiser’s fee, the title company’s research and issuance of a policy and, of course, the lender’s fees, are all part of the closing costs associated with buying a home in Maryland, These fees add up – fast – so it’s important to understand the associated fees up front.
Fortunately, a reliable Maryland buyer’s agent will assist with estimating your closing costs. In addition, a buyer’s agent will often try to work out a deal so the seller will pay all, or some, of your closing costs. Yet another reason to work with a buyer’s agent when buying a home in Maryland!
-Ways to Reduce Closing Costs
1. You can reduce a portion of your closing costs by closing as late in the month as possible. Lenders charge interest in arrears, meaning that when you make a house payment, you are actually paying for last month’s interest (and the coming month’s principal). When you close escrow, the lender will have calculated how much interest you owe from the date your loan was funded to the end of the current month.
For example, if you close on your new home on August 15, you’ll pre-pay the interest due from August 15 until August 31. September’s interest isn’t due until October 1, when you will make your first house payment.
Reduce the pre-paid interest charge by closing at the end of the month.
2. You can eliminate the need to pay all or part of your closing costs by requesting that the seller contribute. The seller gets to write that amount off as a tax deduction and you get to skip the closing costs, so it’s beneficial to all parties.
3. Ask your lender if you can include the closing costs in your loan. Yes, there will be a charge for this but it won’t be nearly as large as the immediate outlay of cash necessary to pay closing costs.
Despite what many first-time Maryland homebuyers think, the down payment isn’t the whole ball of wax when it comes to cash outlays when you purchase a home. It’s important to determine exactly how much cash you’ll need to purchase a home so that you can budget for these expenses.
Learn more about the advantages of a Maryland buyer’s agent here.