Lenders custom tailor mortgage loans based on financial history

Q: A book I received at a first-time homebuyers class says the maximum you can afford for a house is 2.5 times your gross annual pay, which means if you earn $40,000 you can only afford a $100,000 home. Isn't this a little out of date? Homes in Seattle cost way more.

A: "That's a little bit of a misrepresentation to say that's the maximum," says Andrew Dempsey, a mortgage-loan officer for HomeStreet Bank.

However, back before sophisticated computer programs enabled lenders to custom tailor a loan to fit you, as they can now, such iron-clad rules of thumb indeed existed. One of the most important things this technology has allowed is a uniform standard of credit worthiness. Based on your financial history, a credit (or FICO) score can be generated in minutes. The higher the score, the better.

So today, "If you're looking strictly at a minimum 3 percent down payment, I'd say a maximum (a borrower can afford) would be closer to four times gross annual pay, assuming excellent credit and very low debt," Dempsey says.

What's excellent credit? A credit score above 680, which means no more than a couple of 30-day late notices on monthly payments and certainly no foreclosures or bankruptcies.

He pegs very low debt at $150 a month for such things as credit-card minimums and car payments.

Conversely, the lower the credit score and/or the higher the debt, the less house that borrower can buy. (Note: several local agencies offer free financial counseling to first-time buyers. Call the Community Home Ownership Center for information: 800-317-2918.)

Q: When my family rented an apartment three years ago, the move-in papers noted spots on the carpet. We just moved out. The resident manager said everything looked good and I'd get my deposit back. Instead I got a $1,300 bill for carpet replacement, along with a threat that this would go to collection if I didn't pay. I don't think I should have to. How can I find out how old the carpet was when we moved in, and how often owners have to replace it?

A: Columbia Legal Services' Steve Fredrickson says there's no law that a landlord must provide a carpet, let alone replace one. But since you did have one, Fredrickson says, you make a good point in wondering how old it was.

If you do have to you pay for its replacement, you should be charged based on the depreciated value of the used carpet - in other words, what you got when you moved in - not on the cost of a new one. But it's likely you owe nothing if your usage was normal wear and tear.

Also in your favor is the fact that the resident manager said all was well. Hopefully he gave you a move-out checklist that stated this.

Frederickson's advice: Phone that manager and see if he can straighten this out. "Often it's not the manager who's sending out these closing statements," he points out.

If that doesn't work, phone the person who's demanding payment and explain the situation. Should that go nowhere, Frederickson suggests you write this same person.

State that you're not responsible for the carpet situation, you will not pay for its replacement and you want your deposit back. Include a copy of any move-out document.

If you don't get satisfaction, sue in small-claims court. The owner may countersue, but this could be good. Then a judge will provide your final answer.

As for turning you over to collections, federal law gives you the right to dispute any "bad debt" that's reported to a credit-reporting agency.

Q: My condominium board is considering imposing restrictions on the number of units that can be rented. Can it do this? What are the pros and cons of this kind of restriction?

A: Boards that have done what yours is proposing have had their hands slapped in court, says attorney Kris Sundberg. So the answer is no, the board cannot impose such a restriction.

But your association can. "It usually requires a vote or written consent of two-thirds or more of the total ownership," he explains. "Quite a few have done that or are doing it."

The pro is marketability. Mortgage lenders are more willing to make loans in buildings that have fewer renters. Thus, these units are an easier sell.

The con is that owners have less flexibility about what they can do with their property. It's either live in it or sell it. But Sundberg says that in reality, he hasn't seen this become a problem.