So, we sign for our first home next Thursday and I'm starting to think about how I'm going to track all this in Quicken (for Mac).

The first thing I'm not clear on is what category I should use for the downpayment. I could just set up a new category called "House" but then it just looks like an expense when in fact it's more like an investment. How do people usually handle this?

The second thing I'm unclear on is how to account for the mortgage. The Quicken for Mac user's manual advises you to set it up as a loan account, which makes sense to me. But the "I'm a QuickenHead" blog (which is quite useful for Quicken for Mac users) advises setting up mortgage up as a liability account, with the interest payments going to another account and showing up as an expense. Any pros and cons to either approach?

Disregard. . .brain fart

I'm unsure of the difference between a loan account & a liability account. A loan IS a liability. Seemed to me (Quicken 06 Win) that it was fairly straightforward:

I set up 2 accounts, one for the asset and one for the loan. The asset starts off with a beginning balance as the value of the home at purchase. Each year I update this with a balance adjustment based on the appraisal from my property tax statements. The loan also starts off with the initial loan balance and each month as I write checks to my lender, they are split categorized by interest & principle. I don't know about Quicken Mac, but you don't have to have separate accounts for interest & principle in Windows. (Maybe this is suggested for Mac so that you can more easily prepare your taxes?) Since my downpayment included lender fees & such, the downpayment + loan does not equal the value of my home so I did not categorize it to the loan. For the portion of my downpayment that was prepaid, deductable interest, I relied on my lender's year-end statements to prepare my taxes, not a direct transfer from Quicken.

Interesting that there are so many different ways to do this (and I bet/hope others will chime in with still other approaches).

I think I prefer Rush's approach [well, he changed it during editing!] of starting my home's value in the asset account at zero, because that's reality. Until I build equity in the home, it won't have any value as an asset. Rush -- I see you edited that and now you agree with tinyhands, but still, isn't it misleading to have my house as an asset valued at its FMV when the only equity I have in it is my downpayment?

In Quicken for Mac there's a "Loans" button in the Property and Loans area -- there's a sort of wizard that walks you through setting it up, asking you for the interest rate, the term of the loan, the number of payments, etc., so it's more automated. I'll wait and see what other people say before deciding which way to go. Thanks for the advice, and keep the ideas coming!

Let me start over - I went too fast for my own good.

Assume a house worth $100,000 with a down payment of $10,000

#1 - Create an asset account for the value of the house, less the amount of your down payment, so HOUSE for $90,000
#2 - Write your down payment check for $10,000 and make it's category [HOUSE] which will decrease your cash by $10,000 and increase your house by $10,000 (zero change in net worth)
#3 - Create a MORTGAGE account and enter your starting balance of your mortgage ($90,000)

Each month your house payment will split with the principle portion going to [MORTGAGE] and the interest going to INTEREST EXPENSE

If you have an Escrow account:

#4 - Create an ESCROW account (cash) with a balance equal to the amount from your closing documents. As you make house payments, add a third split for the amount of the escrow for the [ESCROW] category. When your escrow account pays your taxes and/or insurance, enter those expenses in the [ESCROW] register

If you have PMI:

Add another split line to your mortgage payment for the PMI Expense amount of the payment.

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If done correctly, your mortgage balance should decrease exactly with your mortgage statement. Your escow account should increase and decrease exactly with your tax and insurance payments. Your interest expense category should exactly match your 1099INT.

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What happens is your [HOUSE] account starts at $100,000 and your [MORTGAGE] account starts at $90,000. Net the two together for a net worth of $10,000 (which reflects your down payment and your equity).

Each year, fairly determine the value of your house and make an adjusting entry. If you house increases 5% during the year, on 12/31/07 make an entry into [HOUSE] to increase the amount from $100,000 to $105,000. If your house decreases 3% during the year, make an entry into [HOUSE] to decrease the amount from $100,000 to $97,000.

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Thanks, Rush, that makes more sense to me.

The part about increasing the value of my house as its FMV goes up sounds a bit too much like counting your chickens before they're hatched, I probably won't bother with that part of it.

That's the nerd in me coming out, it's definitely optional and is a pretty much worthless entry if you don't have your entire financial picture plugged in. . .and even if you do, it may not matter to you. From my perspective, since I update my mutual fund values (for better or worse) it follows that updating any fluctuating asset or liability keeps everything consistent. . .