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Rent-to-own is one approach to buying a home, but it’s not a conventional approach. Basically, if you opt for a rent-to-own arrangement, you enter into an agreement with a property owner that enables you to purchase the property you are renting at the end of your lease term. Depending how the contract is written, you may have the option to buy or the obligation to buy. 

Once you’ve entered into a rent-to-own agreement, you make rent payments that are usually above market rate. The excess money you’re paying enables you to acquire equity in the home. Since you already have an ownership stake, when it comes time to buy, you may be able to qualify for a mortgage more easily without making an additional down payment.

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Rent-to-own can open the door to becoming a homeowner sooner if you are having a hard time saving for a down payment or qualifying for a mortgage. But finance expert Dave Ramsey warns that a “plot twist” could end up costing you if you take this approach. 

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