What part of buying a house would make my net worth go down?
Buying a house can definitely make your net worth go down because there are expenses involved (interest expense, closing costs, taxes, maintenance, etc.). So unless the house appreciates in value enough to offset these things, you will see a drop in your net worth from buying a house. More specifically it can have a negative impact on your net worth, since changes in your net worth are the cumulative result of all your inflows and outflows of money. One way to think of net worth is to think if you sold everything you owned, how big of a pile of money would be standing next to you (assuming your net worth is positive). If you started with $100K and then bought a house worth $100K you would have $0 in the bank and a house.   If you sold that house for $100K you would pay the realtor 6% (typically) or $6K leaving you with $94K.    This means the act of buying your house has reduced your net worth by $6K. I asked a related question about how to value your home in your net worth. Cosigning a loan for someone else will make net worth decrease, whether backed by security or not. In general, buying a house will improve your net worth over the long haul, because unlike cars, houses don't suffer as much from depreciation.  The problem with real property is that markets are very cyclic and aren't very liquid assets. Farmers with thousands of acres of valuable land are often cash poor for that very reason. A lot of people here are negative about housing ownership — this is illustrative of the fact that 2010 is a year where real estate is on the down-side of the cycle. Houses depreciate. Period. Things break: the hot water heater explodes, the AC cuts out in August, the roof leaks, the basement floods, toilets back up, raccoons dig up the garden. Each time something breaks, the house loses value. Every year the paint fades a little, the house loses value. Every time GE comes out with a more efficient washing machine, the house loses value. The only reason a house appears to maintain its value over time is because the money you spend repairing and improving it offsets this unavoidable depreciation. Even then, over extended periods of time it will typically just track inflation--so you're treading water. Not that there's anything wrong with that. You need to live somewhere. You can look at buying a house as being a long term investment in not paying rent.   In the short time there are costs to buying (legal, taxes, etc).   This depends on only buying house of the size/location you need e.g. no better then what you would have rented. House buying tent to work out best when there is high inflation, as the rent you would otherwise be paying goes up with  inflation – provided you can live with the short term pain of high interest rates.
To your first question: YES. Capital gains and losses on real-estate are treated differently than income. Note here for exact IRS standards.  The IRS will not care about percentage change but historical (recorded) amounts.   To your second question: NO  Are you taxed when buying a new stock? No. But be sure to record the price paid for the house. Note here for more questions. *Always consult a CPA for tax advice on federal tax returns. "They are limiting your total investment in Notes to no more than 10% of your net worth. Step 1: determine your net worth Step 2: Divide this number by 10 The answer is the maximum amount you can put at risk through Lendingclub. The issue is that if you lose all the investment you will not be bankrupted. If it was the other way you could invest all your net worth in Lendingclub by splitting it among 10+ notes. Your net worth is  ""determined exclusive of the value of your home, home furnishings and   automobile."" Which means don't include the house and the stuff in the house. That means your net worth is the money in the bank; plus the money invested in stocks, ETFs, and mutual funds; plus retirement accounts (401K, IRA); minus loans (student, credit cards)." "There is considerable truth to what your realtor said about the Jersey City NJ housing market these days. It is a ""hot"" area with lots of expensive condos being bought up by people working on Wall Street in NYC (very easy commute by train, etc) and in many cases, the offers to purchase can exceed the asking price significantly. Be that as is may, the issue with accepting a higher offer but smaller downpayment is that when the buyer's lender appraises the property, the valuation might come in lower and the buyer may have to come up with the difference, or be required to accept a higher interest rate, or be refused the loan altogether if the lender estimates that the buyer is likely to default on the loan because his credit-worthiness is inadequate to support the monthly payments. So, the sale might fall through. Suppose that the property is offered for sale at $500K, and consider two bids, one for $480K with 30% downpayment ($144K) and another for $500K with 20% downpayment ($100K).  If the property appraises for $450K, say, and the lender is not willing to lend more than 80% of that ($360K), then Buyer #1 is OK; it is only necessary to borrow  $480K - $144K = $336K, while Buyer #2 needs to come up with another $40K of downpayment to be able to get the loan, or might be asked to pay a higher interest rate since the lender will be lending more than 80% of the appraised value, etc. Of course, Buyer #2's lender might be using a different appraiser whose valuation might be higher etc, but appraisals usually are within the same ballpark.  Furthermore, good seller's agents can make good estimates of what the appraisal is likely to be, and if the asking price is larger than the agent's estimate of appraised value, then it might be to the advantage of the selling agent to recommend accepting the lower offer with higher downpayment over the  higher offer with smaller downpayment. The sale is more likely to go through, and an almost sure 6% of $480K (3% if there is a buyer's agent involved) in hand in 30 days time is worth more than a good chance of nothing at the end of 15 days when the mortgage is declined, during which the house has been off the market on the grounds that the sale is pending. If you really like a house, you need to decide what you are willing to pay for it and tailor your offer accordingly, keeping in mind what your buyer's agent is recommending as the offer amount (the higher the price, the more the agent's commission), how much money you can afford to put down as a downpayment (don't forget closing costs, including points that might be need to be paid), and what your pre-approval letter says about how much mortgage you can afford.  If you are Buyer #1, have a pre-approval letter for $360K,  and have enough savings for a downpayment of up to $150K, and if you (or your spouse!)  really, really, like the place and cannot imagine living in any other place, then you could offer $500K with 30% down (and blow the other offer out of the water). You could even offer more than $500K if you want. But, this is a personal decision.  What your realtor said is perfectly true in the sense that for Y > Z, an offer at $X with $Y down is better than an offer at $X with $Z down. It is to a certain extent true that for W > X, a seller would find an offer at $X with $Y down to be more attractive that an offer at $W with $Z$ down, but that depends on what the appraisal is likely to be, and the seller's agent's recommendations." "There's an old saying:  ""Never invest in anything that eats or needs maintenance."" This doesn't mean that a house or a racehorse or private ownership of your own company is not an investment.  It just points out that constant effort is needed on your part, or on the part of somebody you pay, just to keep it from losing value.  Common stock, gold, and money in the bank are three things you can buy and leave alone.  They may gain or lose market value, but not because of neglect on your part. Buying a house is a complex decision.  There are many benefits and many risks. Other investments have benefits and risks too." Regarding the mortgage company, they will want to know where the down payment came from, and as long as you are honest about it, there is no fraud. It's possible that the mortgage company may have some reservations about the deal now that they know where the down payment came from, but that will depend on the size of the deal and other factors. If everyone involved has decent credit, and this is a fairly standard mortgage, it will probably have no impact at all. As far as the specific price - it depends so much on the area and the house and other things.  70k could be a perfectly reasonable offer, or it could be an insulting lowball.  If they just lowered it from 95 to 85 for example, 70 is pretty low to start off.  But who knows. To answer the closing costs side of things, though, the reason those are sometimes paid by seller (rather than just dropping the sales price some) is that it makes it easier for the buyer if the buyer doesn't have much cash on hand.  From the seller's point of view it's all the same money - giving you a discount on the sale price vs. covering closing costs - except for the small difference of the realtor's commission (which would be slightly lower in the lower-sales-price example, but usually that's not a significant factor in total cost).  IE: vs How much having the 3k less on hand (and instead in your mortgage) is worth to you as a buyer is, of course, up to you.  If you have plenty of cash on hand for the down payment and closing costs, then paying closing costs yourself is probably in your best interest as the seller typically assumes buyers value reduced/zero closing costs at more than 100% face value. My in-laws are pressuring me to buy a home.  I don't really have much financial experience. In fact, I'm a nightmare with finances. I almost have my student loans payed off from school.  My in-laws and husband are great with finances and with real-estate.  My husband has a good job and $200k in savings.  I have a good job too, and still have some debt from school. (approx $60k left of 180k).   They say the house will be available in Jan or February for purchase, and that we should really try to buy it (prob $2-3 mil).   My guess is they want to make it available to us off the market (which is a huge benefit in this area,  there are really no houses available lately) .   The problem is:  I am uncomfortable because I don't have all of my loans payed off,  I could divert money away from paying off the loans in order to save for a larger downpayment. I just got a bonus of $35k (after taxes)   I don't think I'll have all of my loans payed off by January. Should I save my money for the downpayment or focus on my loans, should I go for the house?  I don't know how to weigh these options against each other with such little experience. First, let me say that you have to take everything your agent says with a grain of salt. Freakonomics had a great article that discussed the math behind the motivation of the real estate agent.  It described the home seller, trying to get, say $400K. On a 6% commission, the $24K is destined to be split between seller realtor office and buyer's realtor's office. The selling agent gets $6,000 (or so) in the end. As a seller, if I settle for $380K, my realtor is only out $300, netting $5700. But $20K lower sale price, and I just lost nearly $19K after commission is paid.  The agent would have the natural goal of volume, not extracting the last dollar from the buyer. Gaining back the last $20K to the seller will cost the realtor far more than $300 in her time, keeping the house on the market and waiting for the better offer.  Sellers might use down payment as one way to estimate the probability of the financing falling through, but it's a rough estimate at best because, in the case of bank financing, the bank needs the same time to run through the paperwork for a 3% down or a 20% down. It's just as easy for the buyer to qualify or not qualify for one loan or the other. There are young couples with great incomes and no debt, who blow away the required ratios for proposed debt to income, but haven't saved up the otherwise huge 20% downpayment. Then there are those who have saved for years, even having 30% to put down, but their income is still not going to qualify them. The offer will be contingent on the financing, regardless. It will show that you are putting $XX dollars as a downpayment, and the final transaction is contingent on your bank approving you. You are correct that 20% has an impact on your interest rate, although it is not always hugely significant.  You would have to do your own shopping around to find that information out.  However 20% has an impact that I consider to be far more important than your monthly payment, and that is in your equity.  If the DC market tanks, which I know it has not really done like much of the country but none of us have crystal balls to know if it will or not, then you will be more easily underwater the less you put down.  Conversely putting 20% or more down makes you an easy sell to lenders [i]and[/i] means that you don't have to worry nearly so much about having to do a short sale in the future. I would never buy a house with less than 20% down personally and have lived well below my means to get there, but I am not you. With regards to mortgages, the cheapskate way that I found information that I needed was to get books from the library that explained the mortgage process to me.  When it came time to select an actual broker I used my realtor's recommendation (because I trusted my realtor to actually have my interests at heart because he was an old family friend - you can't usually do that so I don't recommend it) and that of others I knew who had bought recently.  I compared four lenders and competed them against each other to get the best terms.  They will give you estimate sheets that help you weigh not only rates but costs of different fees such as the origination fee and discount points.  Make sure to know what fees the lender controls and what fees (s)he doesn't so that you know which lines to actually compare. Beyond a lender make sure that before closing you have found a title company that you think is a good choice (your realtor or lender will try to pick one for you because that's the way the business is played but it is a racket - pick one who will give you the best deal on title), a settlment company (may be title company, lender, or other) that won't charge you an excessive amount, a survey company that you like if required in DC for your title insurance, and homeowner's insurance coverage that you think is a good deal.  The time between contract and closing is short and nobody tells you to research all the closing costs that on a $500,000 place run to in excess of $10,000, but you should.  Also know that your closing costs will be about 2% of the purchase price and plan accordingly. In general take some time to educate yourself on homebuying as well as neighborhoods and price ranges.  Don't rush into this process or you will lose a lot of money fast. You should also update your Net Worth Statement as well as an inventory of all your assets.  Unfortunately these are extremely time consuming, but in the event that you pass away your loved ones will know all of your finances and it will be easier for them in a very difficult time.   The Net Worth Statement compiles just that, your net worth.  The net worth is compiled by subtracting your liabilities from you assets.  Assets include things such as cash, money in accounts, all estimated value of your household items, any life insurance, bonds, mutual bonds, and retirement money.  The liabilities include amounts such as your mortgage, second mortgage, car loans, unsecured loans, credit cards, student loans, and life insurance loans.  This statement is a great way to track year to year how you are doing on your finances and if you are where you need to be in order to retire when you would like. The Inventory is also very important. This is used in the event that you have a fire or some sort of disaster that requires you to give a statement of any items you had in your home.  This is a very difficult thing to go through, and having this statement ready to hand over only makes thing easier.  There are a couple ways to do this.  Some people take pictures of everything they have in their house and make notes of prices and values, some people take a video of the whole house, and some people write down item by item on the computer or on a piece of paper.  Whatever way you would like to do it is fine, what works for one person does not necessarily work for the other. "&gt;""You didn't lose your job, you just had temporary employment.""  Same as back in the late 1990's (when unemployment was really low) -- a lot of people got jobs they really weren't qualified for; and were paid far more (at least on a scale relative to their co-workers) than they were really worth.  The sad thing about that is that they came to *believe* they were truly worth that amount of money.  The same with houses.  My home (bought in late 2000) increased in ""estimated market value"" by 75% (i.e. to 175% of it's previous sale price when I bought it) -- and the ""bubble"" around here wasn't anything like it was in other regions of the US; and of course, now it has (ostensibly) sunk back down to very nearly the price I paid for it.  The problem (for a LOT of people) with that is that -- even if they didn't buy during the peak bubble years -- they refinanced or HELOC'd based on that higher estimated value, and so ended up basically removing (and then spending) the lion's share of equity that they had built up in their house.  For others, it was much the same as the late 90's employment -- they came to ""believe"" that their house was worth XX% more -- and they have difficulty ""letting go"" of that illusory estimated market price.  So they are experiencing the ""wealth LOSS effect"" just as they once experienced a ""wealth effect"".  I was saved from those things because:   a) I realized that the price of houses is always ""at the margin"", and is never guaranteed by what the place cost, or what you have invested in it, or even what the owner or mortgage company *thought* it was worth; rather (when you go to sell) it will be determined by what the buyer(s) want/are capable of paying;   b) I was far more concerned with what my ""total cost of buying"" would be (including all of the interest paid on the mortgage) -- this led me to first of all only buy what I ""needed"" in a house (i.e. single guy = small place) and secondly to pay the whole thing off ASAP (which I did, *dramatically* lowering the total lifetime cost of the place);   And finally and probably MOST IMPORTANTLY (though in part due to ""b"" above):  c) It doesn't really matter to me whether the price goes up or down -- because I know that I will always need a place to live and that (generally speaking, due to overall market conditions) the prices of ALL houses will tend to go up/down together -- and though not necessarily in ""lock-step"" (there are always factors of neighborhood, local economy, housing trends, etc.); but still, should I desire to move, I will essentially be able to ""trade"" my house for a similar one in a similar market with only a small (6% to 10%) cost.  d) But I also know that if I move ""up market"" (attempt to move to an area/house that has a relatively higher demand/higher price) that I will then have to pay more or get an even smaller place (smaller home, less land, no garage/shop, etc); yet conversely if I for some reason decide to move ""down market"" (to an area/house with a relatively lower demand/price) I may be able to either pay less, or to get slightly *more* ""house"" (additional land, outbuildings, etc).  Note: I also took into account ""demographic changes"" when I bought -- and think I made the right choice (even though it hasn't ""played out"" yet) -- with the typical household actually becoming *smaller* (divorces, single parents, fewer kids, more retirees wanting to downsize, etc) I figured way back in 2000 that in 15-20-30 years (circa 2015..2045) the big ""McMansions"" would be aging and in huge oversupply, whereas smaller homes would be in relatively higher demand (and given things like ""smart growth planning"") probably in lesser supply... and so would be more likely to retain value.  Again, this hasn't ""played out"" yet (though there definitely ARE signs that it is starting), but I am also really not interested in selling... so it's a moot point at present. (And even if I am proved wrong, it will probably merely prove to be the loss of an ""upside"" and not an actual loss per se.)" I'm not sure cost of capital would decrease that substantially. I have a feeling people still need to find a home for their money - as such it'll simply lower interest rates in order to offset the loss of deduction. IMO it would be quite inflationary.  Edit: I do not think this is a good idea, to be clear. "It certainly seems like you are focusing on the emotional factors.  That's your blind spot, and it's the surest path to a situation where your husband gets to say ""I told you so"".  I recommend you steer straight into that blind spot, and focus your studies on the business aspects of buying and owning homes.   You should be able to do spreadsheets 6 ways from Sunday, be able to recite every tax deduction you'll get as a homeowner, know the resale impacts of 1 bathroom vs 2, tell a dirty house from a broken house, etc.  Everybody's got their favorites, mine are a bit dated but I like Robert Irwin and Robert Allen's books.  For instance: a philosophy of Allen's that I really like: never sell.  This avoids several problems, like the considerable costs of money, time and nerves of actually selling a house, stress about house prices, mistaking your house's equity for an ATM machine, and byzantine rules for capital gains tax mainly if you rent out the house, which vary dramatically by nation.  In fact the whole area of taxes needs careful study.  There's another side to the business of home ownership, and that's renting to others.  There's a whole set of economics there - and that is a factor in what you buy.  Now AirBNB adds a new wrinkle because there's some real money there.  Come to understand that market well enough to gauge whether a duplex or triplex will be a money maker.  Many regular folk like you have retired early and live off the rental income from their properties.  JoeTaxpayer has an interesting way of looking at the finances of housing: if a house doesn't make sense as a a rental unit, maybe it doesn't make sense as a live-in either.   So learn how to identify those fundamentals - the numbers.  And get in the habit of evaluating houses.  Work it regularly until it's second nature.  Then, yes, you'll see houses you fall in love with, partly because the numbers work.  It also helps to be handy.  It really, really changes the economics if you can do your own quality work, because you don't need to spend any money on labor to convert a dirty house into a clean house.  And lots of people do, and there's a whole SE just for that.  There is a huge difference between going down to the local building supply and getting the water pipe you need, vs. having to call a plumber.  And please deal with local businesses, please don't go to the Big Box stores, their service is abominable, they will cheerfully sell you a gadget salad of junk that doesn't work together, and I can't imagine a colder and less inviting scene to come up as a handy person." Sale price minus the loan balance, minus any closing costs is your net.  The numbers don't care whether you have a profit or loss, nor does the bank. People buy too high, pay a mortgage for 10 years, and walk away from the closing with little to no money, every day. The value of a share depends on the value of the company, which involves a lot more than the value of its assets -- it requires making decisions about what you think will happen to the company in the future. That's inherently not something that can be reduced to a single formula, at least not unless you can figure out how to represent your guesses and your confidence in them in the formula ... and even if you could do all that it would only say what you think the stock is worth; others will be using different numbers and legitimately get different results. Disagreement over value is what the stock market is all about, I'm afraid.