Buying your first home is a big decision. It is important you understand the amount of mortgage you are qualified for. If you are purchasing a home with less than a 20 percent downpayment you are considered a “high ratio” borrower, and required to add mortgage default insurance to your mortgage loan.

How do these high ratio mortgage rule changes affect you?

As of July 9, 2012, the following changes come into effect:

1 High ratio borrowing rules have changed for government insured mortgages — bringing back the amortization time to 25 years (from 30 years) — a level it once stood at.

Over the lifetime of the mortgage the homebuyer will save interest, albeit the monthly mortgage payment will be higher. As an example a $250,000 mortgage @ 3.0 percent interest rate with a 25 year amortization equates to a monthly payment of $1,183.11. This is $131.61 more than the same mortgage with a 30 year amortization. Yes, this change will increase your monthly mortgage payment, but you will also pay off your mortgage sooner and save money on interest.

For homebuyers with 20 percent or more downpayment, the amortization is at the discretion of the lender and borrowers may still be able to find lenders offering 30 year amortizations.

2 High Ratio Default Insurers will no longer insure homes where the purchase price is greater than $1 Million. This means purchasers at this level will require a minimum of 20 percent downpayment.

3 The Gross Debt Service (GDS) ratio which represents “Principle, Interest, Property Tax, Heat (and 50 percent of condo fee if applicable)” as a percentage of your gross monthly income will be enforced at 39 percent.

Total Debt Service (TDS) ratio which represents “Principle, Interest, Property Tax, Heat, (and 50 percent of condo fee if applicable) PLUS other monthly expenses (car loan, credit cards etc.)" as a percentage of your gross monthly income remains unchanged at 44 percent.

Previously, often high ratio borrowers with credit scores greater than 680 could have the GDS ratio waived — which meant their mortgage and other basic property costs (PITH & 50 percent C) could total 44% if they had no other debt. Now it is capped at 39%.

Credit scores below 680 (but at least 600) may be qualified as before with GDS ratio of 35% and TDS ratio of 42%.

4 Mortgage refinancing will be limited to 80 percent loan to value (LTV) reduced from 85 percent. This is for current homeowners looking to refinance to take money out of their home.

Mortgage Renewals — How Will These be Affected?

As long as you don’t change the mortgage (ie. you don’t need to borrow more money), your amortization stays the same. This may apply even if you change lenders.

How Does This Affect Existing Mortgage Pre-Approval?

Beyond July 9, 2012 if you don’t have a “live” deal, you will be subject to the new rules. If you have an accepted agreement of purchase & sale and have converted your pre-approval to a live deal before July 9, 2012, you will fall under the old rules. You will be required to close (take possession) of the home by December 30, 2012.

Any amendments to existing mortgage approvals with an accepted agreement of purchase & sale dated before July 9, 2012 will be reviewed on a case by case basis.

Remember real estate is a long-term investment.

About Kimberley Marr is the author of Your First Home: A Buyer's Kit published by Self-Counsel Press. For additional information visit Kimberley Marr's website.

Her book is available:

in a print edition

and as an ebook.

Click cover to enlarge.

Will Your Rental Suite Attract Good Tenants?

Think about the type of tenant you wish to have live in your suite. Before putting up an ad for rent, here are some questions to ask about your expectations for tenants:

• What is the lifestyle of your ideal tenants?
• Are you looking to rent out to students who are less picky about the suite and simply need a place to sleep and study?
• Are you willing to rent out a one-bedroom suite to two people?
• What is your stance on renting to pet owners?
• Are you willing to rent to a tenant with a young child?

Once you have figured out what type of tenants you wish to attract, take a look at your property for rent to see if it matches the lifestyle that type of tenant would have. If your suite only has a mini fridge and hot plate, what kind of tenant will you attract? Or, what if the bedroom only has room for a twin sized bed? This might limit you being able to rent the suite to two people. Determine if your space needs to be upgraded or renovated.

If you are renting out a basement suite, remember that you must have proper windows in every bedroom to pass fire safety laws. Check with your local fire department about specific regulations. Also, does the suite have a private entrance? If not, you may have trouble finding a tenant. Many tenants don’t like sharing an entrance. Also, keep in mind that with a shared entrance, tenants may then also access to the rest of your house! Despite the costs, strongly consider adding a private entrance.

Remember that renting your suite is a long-term investment, so good quality upgrades are worth it. Don’t bother with fancy upgrades; focus on buying durable products. The trade-off will be a low maintenance suite with a higher rental value. A newly upgraded suite that rents for $1000 per month will earn you $12,000 per year! While there are occasional maintenance expenses, if you manage the income properly it shouldn’t take long for you to start earning money on the rental.

Add Incentives and Deterrents

Try to include some goodies to entice good tenants (e.g., free cable and/or Internet). If you are renting out a basement suite, you could also include utilities. This will increase the rent you can charge for the suite, and steer away the renters who want to pay the lowest amounts. Where it is legal to do so, you could incorporate rules such as $5 per day for late rent payments and $30 for checks that bounce. Such rules, where legal and stated before suites are rented out, will not scare off a responsible tenant, but might scare off tenants who do not pay rent consistently.

You can also deter unwanted applicants by requiring references and proof of employment. If you want to rent to students, keep in mind that they may not have either of those to show you. If you require references, ask for references from past landlords if possible. Current landlords may say positive things about the tenant because he or she wants the tenant to leave the current rental. Past landlords have nothing to gain, so they will likely be honest.

Write an Advertisement to Attract Good Tenants

The key to finding good tenants is to write an ad that is both interesting and professional. Promote your rental, but do not exaggerate. Michael Drouillard, author of Landlording in Canada, emphasizes that it is important to include all the basic information in the ad because it demonstrates that you are an organized landlord. Many good tenants are searching for a competent landlord, and a quality ad is the first indicator. Here are some basic facts that Drouillard says should be included in a good ad:

• Rent amount including whether utilities, cable, or Internet are included
• Length of lease
• Property address (or neighbourhood at the very least)
• Number of bedrooms and bathrooms
• Credit check or reference requirements
• If pets are allowed, how many and what kind of animal(s)

If you are posting the ad online, you should include photos of the suite because many renters will skip ads that don't include images. Also include details about any bonus features in the suite. Is it an especially large space? Does it have a new bathroom or private laundry? These details help justify your rent amount to the potential tenant(s).

Catering to a specific type of tenant can also be accomplished by mentioning nearby amenities. A young professional who works downtown is likely to be attracted to great transit options, nearby pubs, and gyms. A family may call you if your ad mentions nearby parks or elementary schools. Students will want to know about the travel time to their school. Think about what your ideal tenants would enjoy doing in your neighbourhood.

Once you start receiving applications, take the time to carefully choose tenants for your suite. It is in your best interest to find a good tenant that will require less of your time and money. Once you have found a tenant with whom you are satisfied, keep up your end of the agreement by promptly responding to inquiries, and phoning in occasionally to ensure that everything is okay with the suite. These brief exchanges allow you to address minor issues before they become major ones.

Be an attentive landlord, and choose your tenants wisely, and you will increase your chances of securing responsible long-term tenants!

More Forms and Information In his book Landlording in Canada, author Michael Drouillard outlines exactly how many agreements and forms you may need during the course of any tenancy. For more information, see Landlording in Canada in our Web store. Self-Counsel Press also supplies a variety of forms kits for rental agreements and for commercial lease agreements. These forms are available in our Canadian store as CD kits, paper kits, and as downloadable kits.

Click image to enlarge

1. If I report my rental (or capital gain) income in Canada, I will not have to report the income in the US. Conversely, if I report in the US, I will not have to report in Canada.

The basic tax concepts that determine taxability are residency/citizenship, and where the work or business activity took place. The business (rental) activity happened in the US, therefore the income is taxable in the US.

Likewise, as a resident of Canada, you are subject to tax on your worldwide income regardless of where it is earned.

You can use the foreign tax credit to reduce your Canadian tax by the amount of the US tax paid, if any.

2. Owning US real estate in my Canadian corporation is a good idea.

There are a number of reasons not to own US real estate in or through your Canadian corporation and for most people, there is no real advantage in doing so.

Any profits will be subject to double tax in the US. You will also lose the special tax treatment of long-term capital gains at the 15 percent rate. All income in a corporation will be taxed at ordinary income tax rates, which range from 15 to 38 percent. Foreign rental income cannot be deferred income in your Canadian corporation.

3. If I rent only to Canadians and they pay only in Canadian dollars, I will not owe US taxes.

This misconception is similar to the first one, but one that is asked quite often. Again, the basis for taxation is fundamentally two things: residency/citizenship and where the activity took place.

Where a tenant is from or what currency they pay you in is irrelevant to the taxability of the income. You must pay tax in the country the income is earned and in the country you live in. Do not forget to use the foreign tax credit to prevent double taxation.

4. Having a house in the US, at my death, will cause all of my assets to be subject to US estate tax.

The nonresident estate tax system is set up to tax only the assets in the US at the time of death. If you do not want to, you do not have to let IRS know about any of your other assets. However, it is usually beneficial to let the IRS know of your worldwide assets because of the exclusion from US estate tax allowed under the US-Canada Treaty.

The US-Canada Treaty allows Canadians to use a percentage of the exclusion Americans are allowed – currently $5,000,000 per person. The exclusion is based on a percentage of assets in the US, compared to your worldwide assets. For example, if that exclusion worked out to 10 percent, you would be allowed a $500,000 exclusion per person. There is one catch however: You have to report to the IRS your worldwide assets.

5. The US will impose a tax of 50 percent on assets subject to US estate tax.

The 50 percent tax is part exaggeration and part lacking information about the US-Canada treaty. Prior to 2010, the highest marginal tax rate was 45 percent; the rate is now a flat 35 percent for amounts over the exemption.

As mentioned above, the Treaty allows Canadians an exemption based on the percentage of US to worldwide assets. As long as your worldwide assets are less than $5,000,000 ($10,000,000) per couple, there will be no US estate tax.

About  Dale Walters is partner and CEO of Keats, Connelly and Associates, the largest North American cross-border wealth management firm.

For more information about buying real estate in the US, consider Walter's book, Buying Real Estate in the US: The Concise Guide for Canadians, is available in our Web store.

Click image to enlarge

Notice of Entry

You must give your tenant a minimum of 24 hours' notice before entering his or her residence. Preparing a written Notice of Entry is the surest way to ensure a legal entry into your tenant’s apartment. On a Notice of Entry, you should include:

• the names and addresses for both you and your tenant,
• the date and approximate time range of your entry (e.g., 9:00 a.m. to 5:00 p.m.),
• the reason for entry (e.g., governmental regulations, repairs, etc.),
• your signature, and
• the date of the Notice’s service to the tenant.

In the event of emergency, you may be able to waive the Notice of Entry requirement; however, you should make yourself aware of what classifies as an emergency. A flooded kitchen would probably allow you to legally enter the suite without notice; a faulty hot water heater may not.

Legal Proceedings

When you are preparing a Notice of Entry, make sure you keep a copy for your own records. By maintaining a paper record of entry into your tenant’s suite, you can save yourself a significant headache in the event of an evictions hearing. You should also urge your tenant to keep a copy; records can prove beneficial to each of you.

Why Might I Need to Enter My Tenant’s Residence?

Repairs are the most common reason for landlord entry into a residence. These can be scheduled or incidental. If your tenant asks you to make a repair, you should push for a written request — also for legal reasons. Maintaining a paper trail of business between you and your tenant is always a good idea in the unlikely event of a legal problem between you.

You may also have reason to enter a suite for the sake of inspection. For instance, the Residential Tenancy Act in British Columbia provides for the option to inspect a residence once per month in order to ensure illegal activities (such as grow ops) are not taking place. However, you must still provide a minimum of 24 hours' notice before entry into your tenant’s residence under this provision. If it seems clear that there is a safety hazard associated with potential illegal activity in a particular suite, you may be able to enter the suite without warning — but be sure that the safety hazard could be classified as an emergency and communicate that clearly.

There is no substitute for familiarizing yourself with the tenancy laws particular to your area when deciding whether or not to enter a suite.

About For more information about landlording and how to deal with tenants, consider Landlording in Canada by Michael Drouillard, available in our Web store. Self-Counsel Press also supplies a variety of forms kits for rental agreements and for commercial lease agreements. These forms are available in our Web store as CD kits, paper kits, and as downloadable kits.

Click image to enlarge

Laws vary province by province , but the first rule of landlording is to always use the proper documentation. With that in mind, how do you know whether or not the documents you are using are the proper, legal documents for your area?

The agreement (lease or rental) terms you have with your tenant, the province in which the rental property is located, and the reason for eviction in the individual circumstances might mean you need to handle things differently.

For example, in Ontario, Canada, the provincial government provides different forms for use in different eviction circumstances: if the tenant has done something illegal, if you want to convert the rental unit for non-residential use, or if the tenant has persistently paid the rent late, are but three different reasons.

Most provinces don’t only expect you to use the correct documentation; they expect you to use documentation they provide for the purpose of evicting tenants.

Where Do I Get More Information?

For more information on eviction laws in your area, contact your local, provincial landlord-tenant association or regulatory board.

AB: Service Alberta

BC: Residential Tenancy Branch

MB: Residential Tenancies Branch

ON: Landlord and Tenant Board

PEI: Office of the Director of Residential Rental Property

QC: Régie du logement

SK: Office of Residential Tenancies

NB: The Office of the Rentalsman/Service New Brunswick

NFLD & LB: Department of Government Services

NS: Residential Tenancies

NU: Nunavut Housing Corporation

NWT: Rental Office

YK: Government of Yukon

More Forms and Information In his book Landlording in Canada, author Michael Drouillard outlines exactly how many agreements and forms you may need during the course of any tenancy. For more information, see Landlording in Canada in our Web store. Self-Counsel Press also supplies a variety of forms kits for rental agreements and for commercial lease agreements. These forms are available in our Canadian store as CD kits, paper kits, and as downloadable kits.

Click image to enlarge