Setting up a house purchase with mortgage
Hi
I've seen a lot of discussions on various unusual or complicated house purchase and mortgage related questions, but i haven't seen a simple step by step explanation of how to record a basic house purchase and the mortgage that goes with it, including how to:
- create the house as an asset (let's say the house price is $1M)
- record the closing costs including
. different fees (appraisal, legal and title fees, mansion tax etc...)
. the initial 10% deposit towards the downpayment (do they get transferred into the "asset" already created or a sub account thereof...but then if i've created the asset with 1M initial value, that deposit now adds to the asset value, which doesn't make sense)
. logging of the remaining 200K in downpayment (in this example downpayment is 300K)
- set up of mortgage for 700K loan (to keep it simple let's say 30 year fixed)
- log the mortgage payments as we go
Subsidiary question: what changes in the above if we want to adjust the house actual market value as it fluctuates (I believe this requires to create the house as an investment rather than an asset, but not sure if there are other implications about how all the above gets done in MD)
Any assistance appreciated, i've clicked on every mortgage related question in this forum, but haven't found this simple explanation anywhere.
PWi
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1 Posted by dwg on 19 Mar, 2025 04:51 AM
I'm a fellow Moneydance customer.
There is no one way of handling a loan.
I'll attempt to show one way using a Moneydance Loan Account, a Cheque account and an Asset account. There are variations even at this level.
1. Create a Moneydance Loan account, with the proceeds of the loan going to the cheque account. As part of creating the loan account you also create a loan account reminder for the repayment of the loan. This has the details of the term, interest rate etc.
2. Typically, you purchase a bank cheque for the house purchase, you can do this in your cheque account, but the proceeds are transferred to the Asset Account. This setup creates the initial house asset value.
3. If some of the funds are coming from other accounts, that is just handled through separate transfers to the asset account.
4. If there are various fees, taxes etc that can either be handled through separate transactions or if there is only one transaction by using a split transaction.
5. I've used an asset account here as I have made an assumption it is not an Investment property. To handle changes in the Asset value an accounting approach can be used. Create an Income Category for "House Revaluation".
When you do a revaluation, you post a transaction using this category for the other side of the transaction. The balance of the House Asset account shows the value of the house.
You could of course set up an investment account, create a "House" security "Buy" this security and periodically enter a new "price" to reflect value changes.
6. If you want to also know current equity, you have to bring the House Asset account and the Loan Account together, to get a net figure. If you want a figure constantly shown I think the easiest way to do this is with the Custom Balances Extension, or if you prefer a custom Net Worth report that just included these two accounts and can be run on demand.
What I've outlined is fairly high level but I think you can get the idea.
2 Posted by pwinckel on 22 Mar, 2025 06:33 PM
thanks a lot dwg for your detailed answer! Sorry for the basic questions, but just so i'm clear let me try to go through step by step with the numbers used in the example:
1. i create a "loan account" for 700K, with the appropriate principal, interest and payment reminders
2. I create a "cheque account" (assume it's a "bank" type account?) with zero balance
3. I create an "asset account" with zero initial balance
4. when you say "the proceeds of the loan going to the cheque account" does that mean i transfer 700K from the loan account to the cheque account? and the cheque account now has a 700K positive balance?
5. When I pay the 100K initial deposit (which is the first installment of the downpayment) from my X saving account, i transfer it to the "asset account"
6. when i purchase the bank check for the remaining 200K of downpayment, i transfer 200K from my bank's savings account to the "cheque account" or to the "asset account"?
7. for the various fees paid for legal title etc...these are categorized separately so they are not linked to any of the 3 house related accounts above?
8. before talking about reevaluation, at the end of the set up process, what is the "asset account" balance supposed to be? And does the actual purchase value of the house get entered anywhere?
9. For reevaluation tracking: i create an income category called "house reevaluation". if a year later the value of the house is estimated at 1.1M. i enter 100K as a "house reevaluation" income....but then does that mean that this 100K transaction doesn't affect at all either the "asset account" or the net equity (if i created a net worth report like you recommend)?
Sorry again for the multiple questions, i'm not very familiar with this as you can tell!
Thank you in advance for your assistance!
PWi
3 Posted by dwg on 23 Mar, 2025 09:04 PM
My example was just one way it could be done there are plenty of variations to allow for how it occurred in real life.
Specifically on your points.
1. This is fine
2. Why? I assumed the funds passed through your existing account, if they say went straight to a Bank cheque you would just transfer the funds to the asset account, this is a variation based on what happened.
3. Fine
4. See point 2 above.
5. Yep fine
6. If the bank draws the money from the Savings account for the B/C then just transfer it to the asset account. Again you reflect what actually happened.
7. You paid the fees from an account somewhere, I am assuming, so you handle those fees in the account they were paid from.
8. At the end of the initial process the value of the Asset account is what you paid for the house, so it is effectively the cost base without any fees. You are not entering the house price directly. What you have is an Asset account for the house which combines the proceeds of savings, so a transfer of assets + a loan.
9. To revalue you enter a transaction in the House Asset account using the income category you have created. This increases the balance of the asset account.
4 Posted by dwg on 23 Mar, 2025 09:05 PM
I'd suggest setting up a new Moneydance data file and trying it out so you can see how it works and how you can adapt it to what you need.
5 Posted by pwinckel on 25 Mar, 2025 02:25 AM
Thank you very much dwg!
One last q: i understand now i don’t need to create that Cheque account.
Playing around with it…when i transfer the example’s 700K Mortgage loan amount to the House asset i created, it creates a transaction for that amount, and when i open the Asset account it now has a 700K balance…but on the left side where the accounts balances are listed it doesn’t show that balance. It does still count it in the net worth report, but it doesn’t show the asset account itself having increased by 700K.
Do you know why and is that normal?
PWi
6 Posted by dwg on 25 Mar, 2025 03:36 AM
Are you referring to the sidebar?
If it is the account is not appearing on the side bar you can click on the plus (+) sign at the bottom of the bar and add the account.
If it appears with a zero balance it is possible the account is marked as inactive, this status is changed on the Account information page.