Right way to record a house loan
Michael T. Garrison Stuber
garrisonstuber@bellsouth.net
Thu, 21 Feb 2002 21:14:18 -0500 (EST)
On Thu, 21 Feb 2002, Randall Hopper wrote:
> I'm not sure how to handle equity on mortgage payments so that the Net
> Worth report in GNU Cash actually works.
>
> For example: $100k house, $10k down, $90k loan
>
> (Assets - Fixed Assets - House ) = $10k
> (Liabilities - Loan - House ) = $90k
> (Expenses - Interest - Mortgage) = $0
>
> Is this right? Or should the $10k downpayment be put in an Equity account?
>
I am not an accountant but:
Create an asset account for the house.
Create a liability account for the loan.
Create an expense account for the mortgage interest.
Create an asset account for the escrow account (if you have one).
Transfer the amount of the mortgage from the loan to the house. Transfer
the downpayment from either equity or from another asset account to the
house. Once these transfers are complete, the value of the house asset
should be the total price paid for the house. When you pay your mortgage
each month you do a split transaction from some asset account (your
checking account for example) to the liability (in the amount of the
principal), an expense account (the interest), and, if necessary, an asset
account (the tax/insurance escrow). Assuming you have an escrow account,
when your tax bill comes do a transfer from the escrow account to an
expense account for the taxes.
I've got a more detailed explanation of this I worked up for a friend if
you're interested. Also, if you're really trying to track this
accurately, your transfer between the mortgage loan and the house asset
account may be a split with funds going off to various expense accounts
representing charges on your HUD-1. (The HUD-1 is a form mandated by
the U.S. Department of Housing and Urban Development for home sales in
the U.S.).