Michael Carvin went to buy a home a couple of years ago and wound up creating a software product (and a company around it) that helps people understand how much house they can afford.
"The decision making process was a complicated thing, I was being told by realtors that I could afford twice what made sense," says Carvin, CEO and co-founder of SmartAsset, whose namesake personal financial management tool was launched Tuesday. Carvin, who spent most of his career building investment models for venture capital firms, put those skills to work to construct a model that would calculate how much he could afford given his other financial relationships, debts, and income, and how different types of mortgages would impact these other relationships over time.
"I shared this model with friends and family who were looking for a home, and realized there was an opportunity here," says Carvin.
Funded by Y Combinator, a Silicon Valley venture capital firm, New York-based SmartAsset works like a cross between a personal financial management site and a very complex rate calculator. It uses an analytics engine to crunch a range of data sets, including local tax codes and regulations, cost of living data, mortgage product information, and the user's financial positions to help determine the most financially sound decision. Adjustable rate mortgages are modeled based on the worst-case scenario for rate increases — or what's called "yield to worse." The technology was built internally. The firm's co-founders include Phil Camilleri, who previously developed high frequency trading platforms at Ion Trading.
It tries to answer the question, "How can you accumulate wealth over time with this mortgage and how does it impact your taxes?" Carvin says.
Sometimes, a home with a lower price may actually be more expensive in high-tax neighborhoods.
"It's easy to figure out how a mortgage will amortize, what's hard is to figure out the consequences of that mortgage decision, combined with local taxes, over a period of time," Carvin says.
SmartAsset delivers this advice via interactive charts, graphs and tips. It's similar to a personal financial management site such as Mint or Geezeo, but is more focused on the impact of larger purchases such as homes or cars. It includes the sort of "what can I afford" type calculators found on sites such as Zillow. Users plug in their income, assets, debt and other information such as the location of the home. They receive information on the type of home they can afford, recommended down payments and mortgage values, as well as the impact of local real estate taxes on personal wealth over time. "It's a kind of income statement balance sheet that's projected out for 30 years," he says.
The information can be used to inform decisions such as rent vs. own in different markets; how much to spend on a down payment; types of mortgage products that may be a good fit; the impact of spending more or less each month for different mortgage terms; and how investments in residential real estate or a down payment on a large loan impact a consumer's other financial concerns, such as a buffer of savings that have been built as a bulwark against unemployment or other emergencies. Other information is also available, such as how a credit score impacts mortgage rates.
Carvin says SmartAsset is also building interfaces for education finance and retirement planning, and plans to provide services for more than two dozen different financial products or planning processes. The site is free to users, and SmartAsset makes money by generating leads for lenders. Lenders also participate in the site by providing information on different types of loans and rates, though SmartAsset did not say how many lenders are providing loan information. The firm also envisions itself entering into Geezeo-style white label arrangements with financial institutions.