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.).