First-time homebuyers will often save and save for the down payment for their home, but all too often they forget about closing costs.
Closing costs are all the fees and expenses you're expected to pay for when you buy your home. These costs represent a significant investment for homeowners, and unlike the down payment, they can’t be rolled into the home loan. Things like appraisal fees and home inspections need to be paid for out of pocket.
Although closing costs can feel like a lot of money, you’re often paying in advance for things like your home taxes or your mortgage insurance (which can actually be a relief - you can avoid having to pay your taxes in a giant lump sum at the beginning of the year).
It’s impossible to know what your exact closing costs will be until you’ve settled on a home and found a lender. Your Realtor and mortgage advisor, though, can usually give you a pretty good estimate of how much you should be putting aside based on their experience with the process.
Additionally, closing costs and expectations vary state by state, which can make it more confusing. If you’re about to go through with a home sale - as a buyer or a seller - here’s what you need to know about closing costs in Maryland.
Both the buyer and the seller pay for closing costs in MD. They are responsible for different costs, though they split the transfer taxes.
Data from Closing Corp suggests that the average closing cost in Maryland is 2.93%-3.9% of the home’s final sale price.
The average list price in Maryland today is $365,000 (via Redfin), which means that the average closing cost is $10,700-$14,200.
“In Maryland, altogether it’s usually around 4% of the home’s purchase price - it depends on the demographic,” advises Maryland-based buyer agent Sophia Matsangakis. “We tell people a range of 3-5%, but most of the time it’s middle of the road - around 4%.”
In big cities like Baltimore, you can expect to pay a little more. “The taxes are higher in Baltimore, so that is going to drive up the closing costs a little bit since normally people have to escrow six months or more for taxes and that can be substantial - that can be a .5 to 1% increase,” she notes.
Although there can be dozens of closing fees that differ depending on the home, location, loan, etc. (if you have to pay for PMI, for example, the first month is due at closing), here are the big ones you can expect to pay for, along with their average cost in MD.
Although they’re often called closing costs, appraisals and inspections are actually paid for before the closing table: “Appraisal fees are paid ahead of time - when they order the appraisal - so they're not on the closing sheet,” Matsangakis explains. “Home inspections, similarly, are paid for in real-time.”
She also notes that Maryland is unique because of the discount you can receive on the state portion of the transfer taxes.
“In Maryland, if you’re a first-time buyer, you do receive a discount on the state portion of the transfer taxes,” she says. “What’s also unique is that it’s not just first-time homebuyers in Maryland - it’s every three years. So if you haven’t purchased a property in Maryland in three years, then you receive that discount again.”
The bulk of a seller’s closing costs are the Realtor commission fees. Though these are typically 6% (3% for each agent)** of the home's sale price, working with a lower-cost brokerage like Houwzer can help reduce those costs.
Home sellers in Maryland can benefit from Houwzer’s 1% all-inclusive listing fee, plus 2-3% for the agent representing the buyer (rather than the typical 6% agent split).
Although you can use a mortgage calculator to get a general idea of how much cash you’ll need to bring to the closing table, it's worth keeping in mind that online calculators use averages to estimate costs - so they will never be completely accurate.
“The only mortgage calculators that I trust are where you plug in an interest rate and it shows you the payment. But even that can be wrong, because for a borrower who’s putting less than 20% down and is going to be paying PMI, mortgage insurance is not the same for every lender,” explains mortgage advisor Robert Wagner. “The lenders we use may have slightly lower charges for the PMI than another lender. So it’s hard to trust any of the mortgage calculators out there because they default to 20% and industry averages rather than specific rates.”
SmartAsset has a fairly nuanced online calculator for closing costs, as it allows you to specify by your city, down payment, type of loan (FHA or VA), etc. - all things that can impact your closing cost estimate.
“If you want to figure out your closing costs precisely, then you need to go to Maryland.gov and look up the tax tables for your demographic,” advises Matsangakis. “Then you need the title fees disclosed from whatever title company you use. Then you would need to understand what it costs from your lender to obtain the mortgage. If you can figure those out, then you can get a pretty close ballpark.”
The best way to get a more accurate closing cost estimate is to meet with your Realtor and/or mortgage advisor. They can come up with these numbers based on the type of home you’re interested in, your lender’s loan requirements, local taxes, and more.
Want to get in touch with a Maryland-based Realtor? Start here.
**Note: This article was written before the Sitzer/Burnett commission changes went into effect.