Patrick Boyaggi thinks the old way of getting a home mortgage is over, along with the expectation that you'll have to a pay a higher interest rate because of a sales commission.
That's why Boyaggi and Mike Tassone, two former community bankers, have launched RateGravity, a Boston startup that provides an automated service for matching homebuyers with low-interest mortgages, taking out the middleman.
Without any marketing, the service has already matched over 150 people with $40 million in approved mortgages since last July, Boyaggi told me, with customers expected to save an average of nearly $30,000 over the life of their loans, compared to traditional lenders. Now, after expanding through word-of-mouth, the company is ready to kick things into overdrive.
To further build its team and begin marketing efforts, RateGravity recently raised a financing round of just over $2 million, BostInno has learned exclusively. The round closed a week before the 2016 MassChallenge winner pitches among 12 other early-stage ventures at Techstars Boston Demo Day on Wednesday.
The investors in RateGravity's new round are a who's who in the Boston startup community, including Evertrue co-founder and CEO Brent Grinna, who led the round through BOSS Syndicate, an AngelList syndicate run by Cambridge venture capital firm Accomplice. Other investors include Chicago VC firm Listen, C Space Chairman Diane Hessan, GasBuddy CEO Walt Doyle, former PayPal Media exec David Chang and InsightSquared CEO Fred Shilmover.
"We just couldn't continue to have this much excitement sub-optimized."
"We just couldn't continue to have this much excitement sub-optimized," Boyaggi said as to why they raised the round. "It isn't about the money. It's always just about being able to capitalize on what's a great opportunity."
Here's how RateGravity works: people who want to buy or refinance their home fill out a profile, answering questions like how much money they're able to put down, their income and where they're looking to buy. The service then uses an algorithm based on a universal set of underwriting guidelines to determine what kind of mortgage and lender they're eligible for. Part of that includes a soft credit check that doesn't impact a customer's credit score and means no Social Security number is required. Most of the time, customers will have multiple lenders to choose from.
Once a customer chooses which lender they want to work with, RateGravity will connect them to the lender. Boyaggi said RateGravity isn't a lead-generation service so customers won't be getting dozens of calls from random lenders.
Because RateGravity's software eliminates the need for a salesperson, the startup takes a fee that is the fraction (.25 percent) of what traditional loan officers typically get (1 percent), allowing lenders to provide lower interest rates. On a $400,000 loan, for instance, RateGravity could help a homebuyer save $2,000 a year in interest.
It's this model that has allowed RateGravity to find early traction without spending a dime on marketing.
"When you save people a ton of money and put their personal interest ahead of a salesperson, they have a good experience and they tell others about it," Boyaggi said.
