First-Time Homebuyer Programs in Maryland
With a robust aerospace and defense industry, many first-time homebuyers look to Maryland when deciding where to buy property. Whether you’re looking to be near the nation’s capital or the affordable waterfront oasis of Baltimore, there are many ideal cities and suburbs for settling down.
Maryland’s Division of Housing and Community Development (DHCD) offers several grants and credits to make the home buying process easier for first-timers. If you’re ready to make a move and invest in a dream home, read the below overviews on each program to find one that works best for you.
Who is a First-Time Homebuyer in Maryland?
If you have never owned a home or haven’t purchased one in the past three years, you are considered a first-time homebuyer.
However, veterans and homeowners purchasing a property in a targeted area can apply for first-time homebuyer grants and credits.
Who is Eligible to Apply for Credit in Maryland?
First-time homebuyers will need to satisfy the below requirements to qualify for state-based assistance:
- The purchased home is within the limits of Maryland,
- Net household income should not be more than the state’s income limit,
- Complete a homebuyer education course,
- Have a credit score of at least 640,
- Can not have liquid assets worth more than 20% of the purchase price of the house,
- And occupy the property as your primary residence.
DHCD Loan Programs for First-Time Homebuyers in Maryland
The following are state-based first-time homebuyer loan programs for Maryland residents:
Maryland Mortgage Program 1st Time Advantage
This program allows first-time homebuyers to secure a thirty-year, low-interest fixed-rate mortgage. The program has several individual options:
- 1st Time Advantage Direct – Offers the most competitive interest rate but does not offer down payment assistance. Borrowers may use external sources of DPA.
- 1st Time Advantage 5000 – Provides borrowers with a $5,000 loan towards a down payment and closing costs. This second loan has a zero percent interest rate, and no payments are due for the life of the first mortgage. If the first mortgage ends through repayment, refinance, transfer, sale, etc., applicants must pay the loan back.
- 1st Time Advantage 3% Loan – Offers a second loan equal to three percent of the mortgage towards a down payment and closing costs.
- 1st Time Advantage 4% Loan – Offers a second loan equal to four percent of the mortgage towards a down payment and closing costs.
- 1st Time Advantage 5% Loan – Offers a second loan equal to five percent of the mortgage towards a down payment and closing costs.
This loan is available for repeat and first-time homebuyers and offers fixed-rate home loans for 30 years. Similar to the 1st Time Advantage program, there are different variants of this program:
- Flex Direct – Offers the most competitive interest rate. This variation does not offer down payment assistance, but applicants can use external sources of DPA.
- Flex 5000 – Applicants can receive a $5,000 loan towards their down payment and closing costs. The loan has a zero percent interest rate, and no payments are due unless the first mortgage gets repaid, refinanced, or the property is transferred or sold.
- Flex 3% Loan – Borrowers can receive down payment assistance equal to three percent of the first mortgage as a zero percent deferred second loan.
- Flex 3% Grant – This grant equals three percent of the first mortgage,and you do not have to repay.
Maryland SmartBuy 3.0 Mortgage
This loan helps Maryland homebuyers reduce their student loan debt. The program will provide up to fifteen percent of the home purchase price, with a maximum of $30,000, to pay off student loans. Applicants must have at least $1,000 in student loan debt, and applicants must fully pay off the debt for one borrower at the time of the home purchase.
Some community organizers, real estate developers, home builders, local governments, and employees provide loan assistance programs to home buyers. After conducting your research and receiving aid from one of these sources, you are eligible for the state to match up to $2,500 as down payment assistance.
You can review the list of eligible partners here.
City Specific First-Time Homebuyers’ Assistance Programs
Different cities in Maryland offer their programs for first-time homebuyers, including:
Frederick Community Partners Incentive Program
First-time homebuyers acquiring property in Frederick are eligible to receive up to $8,000 in assistance to use towards a down payment and closing costs. Additional recipients may be eligible to receive up to $10,000. Aid is awarded as a deferred loan with zero percent interest that you do not have to repay unless the owner sells, transfers, or refinances the property.
Applicants must put $500 of their funds towards the transaction, and they must fall within the program’s income limits.
Gaithersburg Homebuyer Assistance Loan Program
Gaithersburg residents who have lived in the town for over a year can apply for a deferred loan up to either $12,000 or $25,000, depending on the location of the purchased property, not to exceed ten percent of the purchase price. The funding comes as a deferred loan with zero percent interest. Income limits do apply.
Hagerstown Homeownership Initiative
This first-time homebuyer program offers a loan to grant program by providing up to $7,500 to assist with a down payment and closing costs. Borrowers will not have to repay the loan unless they sell, transfer, or refinance before expiration.
County Specific First-Time Homebuyers’ Assistance Programs
The following counties offer their first-time homebuyers programs:
ACDS Mortgage Assistance Program
People living in Anne Arundel County can receive up to $20,000 as a deferred loan to assist with closing costs and down payment. Applicants must fit income requirements and complete the ACDS Homeownership Counseling Program to qualify.
Baltimore County Settlement Loan Program (SELP)
Baltimore County residents can receive up to $10,000 in assistance towards a down payment and closing costs. Borrowers must put five percent of their annual income towards the purchase and live in the property for seven years until the loan expires, or else they will have to repay.
Howard County Settle Down Payment Loan Program
First-time homebuyers in Howard County can receive down payment assistance as a deferred second loan. You will only reimburse the loan should you refinance or sell the property. Income limits do apply.
Montgomery County Closing Cost Assistance Program
This program offers first-time homebuyers five percent, not to exceed $10,000, of the purchase price for their down payment and closing costs. Applicants must work in Montgomery County to apply.
If Maryland is the perfect place for your first home purchase, you should carefully review the above options to see which programs can help you. Communicate with your lender to find an appropriate program, then get ready to move into your new home!
Federal Programs for First-Time Homebuyers
There are many first-time homebuyers programs available between federal, state, and local county and city options. You may be able to combine different types of programs to get the best deal on your home. The following federal programs are available for first-time homebuyers across the country.
Various government-backed loans offer low down payments to help first-time homebuyers acquire their home. FHA, USDA, and VA loans all come with little to no down payment and have their list of qualifications that applicants must meet to apply.
Unlike conventional loans, government-backed loans are insured by the government and therefore protect lenders, incentivizing them to give borrowers appealing deals. In other words, government-backed loans usually come with lower lending criteria. Consult with your lender to find out which loan is best for you.
Here are further details on each government-backed loan program:
- FHA Loans – Secured by the Federal Housing Administration (FHA), FHA loans offer a low down payment (down to 3.5% of the purchase price), a low-interest rate, and generally a lower credit score requirement (typically a FICO score of 580) than competing loans.
Learn more: FHA Loans: Requirements and Limits
- USDA Loans – USDA loans are backed by the United States Department of Agriculture (USDA). These loan programs allow borrowers to purchase or build in rural areas for little or no down payment. Several programs differ on loan repayment terms and interest rates, dependent on an applicant’s income.
- VA Loans – Designed to make homeownership possible for veterans, service people, and surviving spouses, VA loans come with favorable terms, including no down payment and limited closing costs. They additionally provide a low-interest rate and do not require Private Mortgage Insurance (PMI).
HomePath by Fannie Mae
This Fannie Mae program allows first-time homebuyers to quickly purchase a Fannie Mae-owned property. Most properties partner with contractors to complete necessary repairs before closing, but buyers may still need to work with an independent contractor for additional renovations and repairs.
Those who buy properties through HomePath and complete Fannie Mae Homeview can receive up to 3% of the purchase price toward their down payment. Recipients can combine this program with a Fannie Mae mortgage.
To qualify, applicants must meet the following requirements:
- Occupy the home as their primary residence within 60 days of the closing,
- Complete a homeownership education course and provide proof of the certificate,
- And the property must be listed on the HomePath system and be eligible for closing cost assistance.
HomeOne by Freddie Mac
First-time homebuyers can apply for a HomeOne mortgage which offers a 3% down payment. Recipients can combine the program with secondary forms of financial assistance to help cover the initial cost of purchasing a home.
The following requirements apply:
- Applicants must complete a homebuyer course,
- Use the program for a 1-unit property, including condominium units. Manufactured homes are not eligible for the program, but CHOICEHome®’s are,
- For those purchasing as a family, at least one person has to qualify as a first-time homebuyer,
- And at least one applicant must have a FICO credit score.
There are no income or geographic restrictions on the program.
HUD’s Good Neighbor Next Door
Through Good Neighbor Next Door, offered by the Department of Housing Urban Development (HUD), teachers (pre-Kindergarten through 12th grade), firefighters, law enforcement officers, and emergency medical technicians can receive up to a 50% discount off of homes listed by the program. You will, on top of your primary mortgage, sign a second mortgage and note for the discount amount, which will have zero interest and no monthly payment requirements. The program lists properties for seven days at a time, and listings update weekly.
Applicants must meet the following requirements:
- Live in the home as their primary residence for three years after the purchase
- Purchase an eligible single-family home that is in a revitalization area and listed on the program’s website,
- And must occupy the home for three years after the purchase. Should you not complete the three-year occupancy, you will have to pay part of the discount back.
FHA’s Energy Efficient Mortgage Insurance
Through Energy Efficient Mortgage Insurance, first-time homebuyers can receive a loan to cover the cost of energy-saving upgrades to their home. FHA-approved lenders can offer this program to anyone purchasing or refinancing their FHA loan.
The following requirements apply:
- Applicants must acquire an energy savings report. The cost of the report gets rolled into the loan, so you do not have to pay out of pocket,
- Must qualify for the purchase according to FHA credit score requirements,
- And the total cost of the improvements must be cost-effective, meaning that the total amount spent on the improvements must be less than the expected energy saved throughout the improvements’ lifespan.
Learn more: What is a Mortgage? – Part One
State Programs for First-time Homebuyers
Along with federal programs, individual states offer their forms of assistance to first-time homebuyers. This guide will break down each state’s programs, but most states provide the following kinds of programs:
Low-Interest Rate Loans
Many states offer 30-year loans with a below-market, fixed interest rate. In addition, most loans come with a low down payment, typically around 3%. These programs will allow you to combine the mortgage with their down payment assistance programs.
Some states offer additional programs for specific groups of people, like teachers in designated areas or graduates from an accredited college or university. Be sure to check out all programs offered in your state to take advantage of any additional offerings for a group you may belong to.
Down Payment Assistance Program (DAP)
Down payment assistance programs provide borrowers with a second loan to help cover the cost of their down payment. Most programs will also offer closing cost assistance. The assistance varies between 3% to sometimes the entire 20%, capping out at a specific dollar amount. The assistance amount varies depending on income levels and the area you purchase property in.
The DAP may require repayment with an interest rate equivalent to the primary mortgage. Or, the program will defer the loan, and borrowers will not have to repay should they occupy the home as their primary residence for a specified time.
Programs for Veterans
Many states offer assistance to first-time homebuyers who are active military personnel, members of the National Guard, veterans, or spouses of veterans. The type of assistance varies by program and either comes as a low-interest loan (typically lower than the state’s already provided low-interest-rate programs) or down payment assistance.
Neighborhood Revitalization Programs
This type of program is typically available to first-time and repeat homebuyers who are purchasing homes that need significant repairs. To compensate for acquiring a home that is otherwise considered unlivable, this type of program will provide financial assistance to cover the cost of repairs.
The assistance method varies: sometimes, it is rolled into the mortgage amount, and other times offered as a grant that does not have to be repaid. Typically, applicants must prove that the repairs are necessary to occupy the home.
Mortgage Credit Certificate (MCC)
A mortgage credit certificate is a dollar-for-dollar federal tax credit that first-time homebuyers can claim for each year they live in their home. Recipients can claim a percentage of the annual interest paid on their mortgage, not to exceed $2,000, as a credit.
You can file the application when you complete your taxes or update your W-4 tax withholding to reduce the amount deducted from your paychecks. Typically this type of program does not restrict applicants to a specific type of mortgage or financing option; it can be combined with most loans. Income and purchase price limits usually apply, and applicants will need to occupy the home as their primary residence to qualify for the credit.
County and City Based Programs
In addition to federal and state-based programs, counties and towns sometimes offer first-time homebuyer programs to residents or those planning to move to the area. These programs typically provide low-interest mortgages or down payment assistance to help cover the cost of purchasing a home. Sometimes local programs also benefit repeat buyers or particular community members, like teachers or local employees.
While each state throughout the guide lists possible county and city-based programs, we recommend that you research to see if the area you are purchasing in offers a program.
The methods of awarding recipients with assistance vary, but most programs have an allocated amount of funds, and you must submit before an application deadline to be considered. Sometimes the programs operate on a rolling basis and consider each application individually. It is imperative that you read the conditions of the application process to ensure you follow the directions and get considered for the program.
The Homebuying Process
What does the process of buying a home actually entail? Read the following for a general timeline and to grasp a better understanding of where you should start the process.
Decide Where You Will Move
Are you moving to another country, state, or town? Or simply deciding to buy a home in the area you’ve been living for a while? Either way, you should have a clear idea of where you will purchase a home.
If you are torn between several locations, we recommend reviewing what the home buying process is like for first-time homebuyers in each area and also briefly looking at listings to find which options are most favorable to you. In terms of affordability, you can consult with our monthly housing affordability index to understand which metropolitan markets are affordable. The index reviews 100 cities each month to see which have the least and most affordable markets.
Get a Sense of Your Financial Situation
A crucial part of the house-hunting process is understanding how much you can afford. When looking at a home’s purchase price, it can be overwhelming to work backward to comprehend what your monthly costs look like.
To understand how much you can spend on your monthly housing costs, you can consider the following:
Debt-to-Income Ratio (DTI)
The amount of your gross monthly income that goes towards your monthly debt expenses. A lower DTI is more attractive to lenders as it plays into calculating the risk of giving you a mortgage. To determine your DTI, divide your total monthly debt payments by your gross monthly income, then multiply by 100 to get the value as a percentage. Click here for more help on calculating your DTI.
Most lenders look for a DTI below 36%, but some lenders may accept a ratio up to 43%. A lower DTI indicates that you are able to take on the mortgage loan and pay it back, which is attractive to lenders as they seek reassurance from borrowers that they will get their money back.
Know (and Raise) Your FICO Credit Score
An important qualification for most mortgages and first-time homebuyer programs will rely on you having a credit score above a certain number. Your credit score is a three-digit number that predicts how likely you will repay your debt. Lenders and programs look for higher credit scores as it ensures that they will receive the money-back that they lent and that you are a trustworthy borrower. Some programs will give you better mortgage rates and incentives if you have a higher credit score.
If your credit score is poor or fair in the early stages of your home buying process, you may want to delay your search for a bit longer and work to improve your score. Paying off debts, lowering the amount of available credit you are using at a time, disputing any errors, and opening a new line of credit may help boost your score enough to appeal to lenders and programs.
Potential Monthly Mortgage Payment
You should gauge a general idea of how much money you will spend on your mortgage and housing expenses each month. Your mortgage consists of four components, including the principal, interest, taxes, and insurance (PITI).
After determining how much you can afford to spend each month on your housing expenses, you must consider all aspects of your PITI by calculating your taxes and insurance. There are multiple tools online to help you develop solid numbers for these aspects. Deduct your monthly taxes and insurance amount from your budgeted monthly housing expenses to understand how much you can spend on your principal and interest.
Since mortgage rates fluctuate, you should research the current average rate and then use an online mortgage calculator to get a general understanding of how much you can afford to spend on a purchase price. If mortgage rates are running higher, then you will need to search for a lower purchase price, so your monthly payment does not go over budget.
There are several budgeting models you can use when determining how much to spend on your mortgage. Chase outlines several principles, but the overall consensus is that you should spend no more than 30% of your monthly, pre-taxed income on your mortgage.
Learn more: 50 30 20 Budget: A Guide With Examples
Choose a Mortgage Lender & Get Preapproved
When engaging in this part of the process, it is important to shop around for several different lenders to ensure you get the best possible deal on your purchase. You may qualify for different types of loans, and even if you only qualify for one type, there are still different fees associated with the various types of lenders you may meet with. Even if rates differ at numbers under 1%, that can still equate to thousands of dollars over the course of your loan.
As you decide on which loan options work best for you, there are some factors you should consider:
- Interest rates fluctuate and generally come in at 3 to 4%. To receive a lower interest rate and therefore pay less each month, you can build your credit score and save for a higher down payment.
- Annual Percentage Rate (APR) includes your interest rate and additional fees and closing costs associated with acquiring your loan. It is a wider perspective of all the items you will pay for when taking out a mortgage.
- Private Mortgage Insurance (PMI) is insurance coverage that lenders require when you put down under 20% as a down payment. Your total loan amount and mortgage rate determine your PMI.
Looking to buy soon? Check today’s interest rate and get pre-qualified in 2 minutes.
You should go through the pre-approval process with a selection of lenders you are considering working with. Getting pre-approved will allow you to shop for homes and actually meet with agents, as the pre-approval helps guarantee that you are eligible to move forward in the buying process should you like a home you find.
This stage in the process is where you will also discuss first-time homebuyer programs, as outlined in the remainder of this guide, which you can take advantage of to get a better deal on your mortgage. Discuss all options with potential lenders and then decide which program and lender are best for you.
Learn more: Pre-Qualified vs. Pre-Approved
In this phase, you will also submit documentation to various lenders to receive a loan estimate. While the estimate is not the official approval of your mortgage application, it does provide important information about the costs associated with purchasing a home. You will read through the three-page document, then provide additional information and complete the underwriting process should you decide to proceed with the mortgage.
Find Your Home and Make an Offer
Now comes the fun part, actually looking at homes! Take a look at the available homes in your area and inquire about viewing properties with agents. Once you have found a place you can as your future home, it is time to make an offer. This is where you will discuss with your agent to decide how much you should offer, and they will work with the seller’s agent to accept, deny, or negotiate.
To assist in your home buying process, you may enlist the help of a real estate agent. The agent will show you an assortment of homes based on what you are looking for. Your agent then enters the negotiation stage with ample knowledge and the required skill set to get you the best deal on your purchase. Most homebuyers appreciate working with an agent as they have the industry knowledge and can take some of the workload off of your plate as you embark on the other stages of the home buying process. Find the top real estate agents in your area now.
If the sellers accept your offer, you will make a good-faith deposit. Then the transaction will transfer into escrow, meaning the home is taken off the market for a short time under the assumption that you will move forward with the process should there not be anything seriously wrong with the home.
This is where you will have a home inspection to ensure everything is safe and up to standard. If there is anything significantly wrong with the home, you will either be able to take back your offer or negotiate with the seller to have them fix it or lower the original offer amount to reflect the cost of repairs.
Once the home is inspected and everything is up to standard, you are ready to close on the home. This is where you will get ready to sign a collection of paperwork and cover the additional closing fees to ensure your get the home. Fees can include and are not limited to. things like the title fee, survey fee, property tax, and attorney fees. At the moment, only twenty-two states require the presence of an attorney during a closing.
Before the closing, you may also coordinate a home appraisal, follow up on matters regarding the home inspection as needed, schedule a utility transfer, change your address, and any other additional processes.
Learn more: What Can I Do if My Appraisal Comes in Low?
On average, the closing process takes between thirty to fifty days, and there are several factors that influence the timeline. If you pay in all cash, the transaction takes less time due to less paperwork. As the homebuying process increasingly goes online, this process continues to grow shorter. On the day of the actual closing, you will spend about an hour signing documents.
The closing will take place in person or online. Before the closing date, you should read through the official closing disclosure so you know the exact fees you owe and the exact terms of what you are signing. When it comes time to close, you will sign all the paperwork, get the keys, and then be ready to move into your new home!