How Much Are Closing Costs in Maryland?

Understanding Closing Costs

Real estate transactions involve various financial obligations beyond the property’s purchase price, known as closing costs. These fees and expenses are paid by both buyers and sellers at the conclusion of a real estate transaction, often on the day the property legally transfers ownership. They cover the services and processes required to finalize the sale and transfer of property title.

Categories of Closing Costs

Closing costs fall into several broad categories. Lender fees encompass charges from the financial institution providing the mortgage, such as loan origination fees, appraisal fees, and credit report fees. These fees compensate the lender for processing the loan and assessing the property’s value and borrower’s credit history.

Title company fees cover services related to establishing clear ownership of the property. This includes title insurance, which protects both the lender and the buyer against potential defects in the property’s title. Settlement fees, also known as escrow fees, are paid to the company or attorney overseeing the closing process and handling the transfer of funds and documents.

Property-related expenses often include prepaid items and adjustments for ongoing costs. Homeowner’s insurance premiums are typically paid for a year in advance at closing. Property taxes are usually prorated, with the buyer reimbursing the seller for any taxes prepaid for the period after the closing date.

Government recording fees are paid to the local government to officially record the transfer of property ownership and the mortgage deed. Survey fees may also be incurred to verify property lines, especially where boundaries are unclear or new construction is involved.

Maryland-Specific Closing Costs

Maryland has specific closing costs, notably its transfer and recordation taxes. The state imposes a transfer tax, typically 0.5% of the purchase price, split equally between the buyer and seller unless otherwise negotiated. For first-time homebuyers, this tax can be reduced to 0.25% if the property meets certain criteria, such as being their primary residence.

In addition to the state transfer tax, counties and municipalities in Maryland often levy their own local transfer taxes, which vary significantly. Many counties charge an additional 1% of the purchase price, often split between the buyer and seller. Some counties may have different rates or specific exemptions, and the buyer often pays a larger share or the entire county transfer tax, depending on local custom and negotiation.

Maryland also imposes a recordation tax, calculated based on the purchase price or loan amount, whichever is greater, and typically paid by the buyer. The recordation tax rate is generally $6.90 per $500 of consideration, or 1.38%, though this can vary by county. Some counties might have a lower rate for properties below a certain value or for first-time homebuyers.

Beyond these taxes, attorney settlement fees are common in Maryland, as attorneys often conduct the closing and handle the escrow process. These fees cover legal services involved in preparing documents, reviewing the title, and ensuring a smooth closing. They can range from a few hundred to over a thousand dollars, depending on the transaction’s complexity and the attorney’s rates.

Estimating Your Closing Cost Total

Estimating your total closing costs in Maryland requires considering various factors beyond the purchase price. Closing costs in Maryland typically range from 2% to 5% of the loan amount or purchase price, though this can fluctuate. The actual amount is influenced by the property’s location, loan type, and negotiated terms.

The loan type plays a significant role in determining specific lender fees, with different mortgage products carrying varying charges. The property’s purchase price directly impacts taxes and fees calculated as a percentage of the sales price. The specific county where the property is located can alter the total due to differing local tax rates and potential local fees. Negotiated terms between the buyer and seller also directly affect the final cost distribution.

To gain a precise estimate, borrowers receive a Loan Estimate (LE) from their lender within three business days of applying for a mortgage. This document provides a detailed breakdown of all estimated closing costs, including lender fees, title services, and taxes. The LE allows borrowers to compare offers from different lenders and understand their financial obligations.

Closer to closing, typically three business days before the scheduled closing date, borrowers receive a Closing Disclosure (CD). This document is a final itemized list of all actual closing costs and any adjustments made since the Loan Estimate. The CD outlines the exact amounts due from the buyer and seller, including prorated property taxes and other prepaid items. Comparing the CD to the LE is important to ensure accuracy and identify any significant changes.

For a hypothetical example, consider a home purchased for $400,000 in a Maryland county with a 1% county transfer tax. The state transfer tax at 0.5% would be $2,000, and the county transfer tax at 1% would be $4,000, potentially split between parties. Recordation tax at 1.38% on a $320,000 loan (80% loan-to-value) would be $4,416. Adding typical lender fees ($1,500 for origination, $600 for appraisal), title insurance ($1,000), and attorney settlement fees ($800) would bring the total estimated closing costs to approximately $14,316, before considering any pre-paid items or escrows.