How Much Home Can You Afford? This Site Knows

NEW YORK (MainStreet) -- A new web startup is trying to take the guesswork out of home buying and other big financial decisions.
 
SmartAsset, which launches today, differs from other personal finance tools like Mint by focusing not on day-to-day budgeting but on big, life-changing financial decisions like buying a new home or car. SmartAsset CEO Michael Carvin says he founded the site after a frustrating experience trying to find good financial advice during his first home buying experience. 
 
“I went to buy a home in 2010 and what I thought would be a relatively straightforward process turned into a pretty complicated financial decision,” he explains. “I built myself a model in the same way I would build models for companies when I was working in finance, and that became the basis of SmartAsset.”
 
The financial model is wedded to a slick interface that helps first-time buyers determine exactly how much house they can afford. Plug in your income, savings and current debt load, and the formula spits out a dollar figure for the highest-priced home you can currently afford. It also shows you a recommended down payment and mortgage value.
 
All three figures are on adjustable sliding scales that let you experiment with putting more down or borrowing more in the service of affording a pricier home. But the system will warn you if you’re overextending yourself financially: if you want to increase the down payment by an extra $5,000, the site implores you not to “put all your eggs in one basket,” noting that such a move would cut into your savings to the point that you no longer have the requisite 3 to 6 months of income for your emergency fund. Meanwhile, if you try to jack up the amount you’re borrowing, the system will raise a red flag warning you that your monthly payments for the loan will require too much of your income. 
 
The hope is that the site will appeal to would-be homebuyers wary of taking out an unsustainable mortgage and becoming another foreclosure statistic.
 
“I think that people’s attitudes toward money have changed since the [housing] crisis,” says Carvin. “They’re more cautious about making these big decisions.”
 
In addition to helping you determine how much home you can afford, the site also aims to demystify some of the other questions surrounding the home loan process, including how the purchase will change your tax situation and how your credit score affects your mortgage rate. All of the tools are provided to users for free, and the company aims to make money through lead generation, that is, pairing prospective homebuyers with mortgage lenders. 
 
For now, SmartAsset is limited to helping with the big decision of buying a home, though the model that forms the backbone of the site can be used to provide guidance on buying cars, going back to school and planning for retirement. The company hasn't built a user interfaces for guiding people through the additional financial decisions yet and will do so over time, Carvin said.
 
This means that at launch, SmartAsset is something of a one-trick pony. But if you’re trying to make sense of the home buying process -- and with interest rates at historic lows, many Americans are doing just that -- and you aren’t satisfied with the advice you’re getting from traditional channels, it’s a very neat trick.

More on homebuying and mortgages:

How to bust the 15-year/30-year mortgage duopoly

Is it better to buy a new or used home?

Housing recovery could take a generation