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Running head: HOME COMPARISON 1

Home Comparison

Student’s Name

Institution Affiliations

HOME COMPARISON 2

Home Comparison

Introduction

Home ownership is a major part of many people's lives and is dependent on very many

factors. Such factors include the individual or household income, place of work, size of the

home, security within the neighborhood, price of the home, size, and the personal preferences.

This paper will consider two homes in different locations and compare their features to

understand the factors that may cause the difference in pricing.

Table 1: Home specification details and locality data (based on 2010 US Census data)

Specifications

House #1 (Figure 2 in the

Appendix) in South

Pasadena, California

ZIP 91030

House #2 (Figure 3 in the

Appendix) in Malibu,

California

ZIP: 90265

Location

716 Flores De Oro, South

Pasadena, CA 91030

5940 Filaree Heights Rd,

Malibu, CA 90265

Square Footage

3,009 sq ft

3,085

Total Price

$ 2,100,000

$2,995,000

Price per square foot

$698

$971

Specifications

4 beds, 4 bathrooms, 0.77

acres lot

4 beds, 4 bathrooms, 0.6 acres

lot

Type

Single Family Home

Built

1965

1964

Style

Contemporary

2- Story Ranch

Garage

Three-car garage

Two-car garage

HOME COMPARISON 3

Pool

Yes

Population

25,619

12,645

Median Age

40.1

51.4

Percentage above 18 years

74.4% male, 78.6% female

79.8% male, 82.8% female

Number of Companies

3,817

2,531

Education Accomplishment

(percentage of high school

graduates or above)

95.5%

97.7%

Total Housing Units

11,053

7,370

Median Household Income

$78,957

$119,659

Foreign born population

6,924

2,121

Individuals below poverty

level

7.8%

10.5%

Question 1 & 2

There are different reasons why I selected the two ZIP codes as an ideal location for

buying a home. The two locations have excellent schools and other social amenities. Also, the

security in both regions is a major factor considering the insecurity in some parts of California.

There are various benefits of selecting a bigger house. One benefit is that there will be adequate

space if one opts for a bigger family. Also, the current housing trend in California shows a

possibility of an increase in the value of the real estate properties. As such, there is a potential

upside in case of the housing market gains in value. Additionally, purchasing a bigger house will

cost more but the interest paid is deductible from the Federal income tax in the course of the

mortgage repayment.

HOME COMPARISON 4

Question 3, 4 & 5

The house that is located in South Pasadena, CA costs $2,100,000 while that in Malibu,

CA costs $2,995,000, a difference of $885,000. Also, the price per square foot for the House #1

is $698 while that in House #2 is $971. There is a minor difference between the two houses

concerning size and design. However, House #1 is bigger since it is built on a larger piece of

land (0.77 against 0.6 acres lot). Equally important, the demographic data indicates that Malibu

has a smaller population than South Pasadena (12,645 against 25,619). Also, the median age in

Malibu is higher than that of South Pasadena (51.4 against 40.1). Furthermore, Malibu has a

higher literacy level than South Pasadena. South Pasadena has more housing units than Malibu

(11,053 against 7,370). However, the major difference is the median household income between

these two regions. Malibu has a median household income of $119,659 while that of South

Pasadena is $78,957, a difference of $40,702.

Question 6 & 7

Based on the data above, purchasing a home in Malibu is more expensive than South

Pasadena. The difference in the price per square foot between the two houses is $273 which is a

huge difference. I would select the house located in South Pasadena since it is by far cheaper and

sits on a bigger piece of land. Many mortgage financing institutions require a deposit of 20%,

which will amount to $420,000. After the down payment, the remaining balance will be

$1,680,000. The most common mortgage repayment period is either 20 years or 30 years.

Considering an interest rate of $5%, and a closing cost of $3,500, the monthly repayment is

expected to be $9028.37, and the total payments will be $3,250,213.20.

The general formula for the calculation of monthly mortgage payments is

M = P [ i(1 + i)

] / [ (1 + i)

- 1]

M= 1,683,500 [0.004167(1+0.004167)

12*30

]/ [(1+0.004167)

12*30

-1]

HOME COMPARISON 5

M= 1,683,500 [0.0186 / 3.4683]

M= $9028.37

The total payments to repay the mortgage will be $9028.37* 30 *12= $3,250,213.2

The total interest paid over the course of the mortgage will be $3,250,213.20- $1,683,500 =

$1,566,713.2

Question 8

The required mortgage repayment will be $9028.37. Considering that I do not have any

other debts/obligations, the financial institution will deduct utmost 33% of the monthly gross

income. The monthly income is $27,424.00, and thus the bank will deduct 33%, which will be

$9,049.92. This amount will be enough to repay the required monthly installments of $9,028.37.

These calculations show that financing this mortgage will be expensive and I cannot take up any

other significant loan. This explains why home ownership in the US is still a major challenge

since a majority of the people are not able to raise the required down payment. As such, I will

need to save for a while so that I can have the down payment of $420,000 before taking up the

loan.

Factors to Consider when Considering Purchasing a Home

Numerous factors must be taken into account before purchasing a home. One of the

aspects to consider is the proximity of the property to family, work and social amenities such as

hospitals, schools, police station, and shopping centers or a mall. Also, the security of the region

is an important factor as it affects the value of the property. The increase in insecurity can

significantly reduce the value of the property, thus rendering the investment ineffective.

Different parties are involved in the purchase of a property. These parties include the real estate

agent, valuer, conveyance, insurance company, lenders, pest and building inspectors, and finance

HOME COMPARISON 6

brokers. Equally important, various documents will be required when purchasing the property.

This includes a sanctioned building plan, latest tax paid receipt, absolute sale deed in the name of

the seller, title documents of the land owner, and occupancy/possession certificate from the

builder.

A home inspection is critical when completing the purchase of any property. Although

the seller is obligated to disclose any material information of the property that may influence the

buying decision, some fail to observe this rule. As such, the buyer should ensure that inspection

looks at the electrical works, pests, square footage, soil stability, sewer or septic system, mold,

and the heat and air conditioning (Maison International, 2017). Also, the inspection should be

done on the roof, foundation, chimney, well, pool and spa. Moreover, the financing options can

be considered to ensure that one gets the best policy with the lowest interest rate and best

repayment policy (Maison International, 2017). Home ownership is a great investment

opportunity since the property increases in value and builds equity. Also, the tax code allows

mortgage owners to deduct the interest on the mortgage from their tax debts (NAR, 2012).

Figure 1 shows the trend in the housing market in California since 2008. The data shows that the

property value declined significantly from 2008 to 2012 owing to the global financial crisis of

2008. However, the property value in California has considerably grown since 2012 (Zillow,

2017).

HOME COMPARISON 7

However, home ownership is a long-term commitment, and the financial status of the

mortgage holder may change in the future, thus making it difficult to honor the agreement. Also,

many home owners normally borrow against home equity which can accumulate the debt

obligations (NAR, 2012). The benefits of home ownership are more than the challenges, and thus

I can consider purchasing a home. The property bubble in the US has shown how quickly real

estate investments gain their value.

HOME COMPARISON 8

References

Cortazzo, C. (2017). 5940 Filaree Hts, Malibu, CA 90265. Realtor.com. Retrieved from

http://www.realtor.com/realestateandhomes-detail/5940-Filaree-

Hts_Malibu_CA_90265_M15649-49891#photo1

Maison International (2017). Things to consider when buying a home. Maison International.

Retrieved from http://www.maisonintl.com/Documents/Maison-Intl-Buyers-Guide-

NYC.pdf

NAR (2012). Social Benefits of Homeownership and Stable Housing. National Association of

Realtors. Retrieved from https://www.nar.realtor/sites/default/files/social-benefits-of-

stable-housing-2012-04.pdf

Tong, W. (2017). 716 Flores De Oro, South Pasadena, CA 91030. Realtor.com. Retrieved from

http://www.realtor.com/realestateandhomes-detail/716-Flores-de-Oro_South-

Pasadena_CA_91030_M22099-89238#photo36

Zillow (2017). California Home Prices & Values. Zillow. Retrieved from

https://www.zillow.com/ca/home-values/

HOME COMPARISON 9

Appendix

Figure 2: House #1: 716 Flores De Oro, South Pasadena, CA 91030. Copyright of Realtor.com

HOME COMPARISON 10

Figure 3: House #2: 5940 Filaree Hts, Malibu, CA 90265. Copyright of Realtor.com

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