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Your Next Home

Selling your house and buying another takes a great deal of your time and money. The more often you move, the more these costs compound. So, when you choose your next home, choose carefully. Before you set your mind on living in one specific area or type of property, check out a variety of different areas and housing options that address your needs.

Think through your next down payment

After you sell your house, you may well have some choices about the size of the down payment on your next home purchase. At a minimum, we recommend that you make a down payment of at least 20 percent of the purchase price of your next home. Why? Because that's the percentage that generally qualifies you for the best mortgage programs available.

What if you can make more than a 20 percent down payment? In that case, the real question is whether you can earn a high enough return investing that extra money in mutual funds, stocks, bonds, and so on to beat the cost of borrowing money on your mortgage.

Younger home buyers willing to take on more investment risk should lean toward a 20 percent down payment, whereas older home buyers who tend to invest less aggressively should opt for larger down payments.

Remember that renting can be a fine strategy

Keep in mind that you have two years to defer tax on your house-sale profits. Don't feel pressured to rush into purchasing your next home, especially if you're having doubts about the location and the type of home you want.

Renting isn't "throwing money away," especially in the short-term. Buying a home you'll soon have to sell because it doesn't meet your needs or wants is throwing money away -- the transaction costs of buying and selling real estate can dwarf the short-term costs of renting.

If you're unsure about where you want to buy, try renting in the area you love most. If the neighborhood turns out to be everything you dreamed, then you're in the perfect position to move fast when homes in that area become available. On the other hand, if you find that the neighborhood is not as rosy as you thought, you can pat yourself on the back for not rushing into a purchase and use the rental as a base for investigating other options.

If you do rent, be sure to increase your income tax withholding or estimated quarterly payments. Your employer's benefit department can provide you with Form W-4 for adjusting your withholding. If you're self-employed, adjust your quarterly tax payments using the "Estimated Tax Worksheet" that comes with Form 1040-ES.