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Comment by thfuran | Hacker News Reader

Buying a house shouldn't make your net worth go negative (unless it massively depreciates, I guess). The mortgage balance is debt, but it's backed by the value of the house.

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Not sure of location of parent comment, but in the United States, buying a house includes a lot of initial expenses, called "transaction costs." Things like purchasing title insurance, prepaying taxes and insurance for the escrow, paying for inspections and appraisals, and of course the bank has some fees they roll into the mortgage. So unless you value the house you just purchased for more than the purchase price and make up the difference, you'll lose net worth equal to those transaction costs.

EDIT: Ah I see they were implying they went from $200k net worth to NEGATIVE. I hope the transaction costs were less than that!

Yeah, I suppose if you start with 200k and manage to get someone to give you a mortgage with nothing down for a 20 million dollar house or something crazy like that, your transaction costs might wipe out your net worth.

It depends on several factors including the size of the down payment and market conditions. If the market declines it could be very bad for net worth.

Thanks I’ve been watching videos on YouTube about becoming a millionaire in retirement. They say mortgages and car payments are bad in any form.

To them any debt is bad no matter what it is and drags down their calculation of becoming a millionaire. Their calculation for net worth is all savings minus any form of debt.

Car payments and mortgages are very different things. A car payment is a loan for a depreciating asset. So even after you finish repaying your car, at the end you have an asset that's worth much less than what you paid for it.

A mortgage is different, by getting a mortgage and buying a house, you build up your assets with every payments you make, it's often better than paying a rent and not getting anything in the end... The main difference between a car and a house is that the house generally doesn't depreciate, which is why a mortgage can be a good investment.

No, car payments and mortgages are very much similar things. Excluding the land, your house depreciates. You have to spend money to maintain both. The rent expense goes to the landlord, and the mortgage interest goes to the banklord. Rent is often cheaper, saving you money. And the savings can be invested and grow in value. You get that in the end.

Any debt is bad if not managed properly. I don't think buying a house makes sense in all circumstances and that largely depends on where you're living and what you do for work. Being debt-free might feel good but you miss out on a lot of opportunities that you could otherwise responsibly take by completely avoiding debt. I'm assuming by you maxing out your 401k and taking advantage of your employee plans that you're responsible with your finances so I wouldn't completely overthink things.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

There are a lot of variables in play, but buying a house with a mortgage can end up being better financially than renting. There are a lot of factors to consider. If renting is worse than home ownership, and you hold off buying until you can do it without a mortgage, you may lose out. Additionally, if you can get a really low fixed-rate long-term mortgage, but you invest in long-term total market index funds, historically, you'll come out on top over having paid cash for the house.

Interest rates are abysmally low and a mortgage is one of the few ways you can take advantage of this.

Also, if debt is bad (and I agree), do these people live with their parents? Because that's the soundest financial move possible.

Net worth is assets (everything you own, not savings only) minus liabilities (like debt).

You don't own the house until it's paid off.

You do, in fact, own the house. It is encumbered in that if you sell the house, you have to pay back the mortgage first.

Buying a house doesn't negatively impact your net worth, even if you owe money to the bank, unless your home value nose-dives for some reason (eg recession/depression).

Here's an example:

Let's say today you have $100,000 cash in your bank account and no other assets to your name.

Your net worth is $100,000.

Now let's say that you buy a house tomorrow for $500,000. You put 20% down ($100,000) and secure a loan from the bank for the final $400,000. Here's your new net worth:

Asset: House $500,000

Debt: Loan ($400,000)

Total: $100,000

I wasn’t adding the value of the house into my napkin calculations. I was only looking at the debt and savings.

But you own a portion of the house and the bank owns a portion equal to the loan value.

The bank doesn't, really, they own your debt. The amount that you owe the bank does not increase or decrease with the value of your property.

Can you sell the house and keep the cash? You own the house, the deed is in your name. You have a debt with the bank. The bank has your house as collateral but the city chargers you taxes on it because you own it.

Yes you do!

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