Breaking a Lease to Buy a House

When you’re ready to transition from renting to homeownership, breaking a lease can seem daunting.

This guide will help you understand your options so you can make informed decisions about breaking a lease when buying a house.

Can You Break a Lease to Buy a House?

Yes, you can break a lease if your rental contract allows it. As a renter, you retain the right to move out early, but it’s essential to understand the terms of your lease agreement before making any decisions.

Landlords generally don’t care where their renters move, but they do care about receiving payments. Therefore, you can leave whenever you want—as long as you keep making payments. However, if you stop making payments, you’re officially “breaking” the lease, which has legal consequences.

Breaking a lease could lead to lawsuits, so it’s crucial to understand your lease agreement and the available options before buying a home while still under contract.

Some rental agreements contain specific clauses for breaking a lease early. These could include valid reasons such as:

• Sudden illness or disability
• Active military service
• Failure by the landlord to meet safety or privacy standards

Additionally, some leases include early termination clauses, allowing tenants to end their lease with a 30- or 60-day notice. Early termination clauses are more common in markets with rising rents or housing shortages, benefiting landlords by quickly cycling tenants and increasing rent.

How to Get Out of Your Lease

If you’re ready to stop renting, there are a few steps you can take:

1. Ask Permission

The first step is always to ask your landlord for permission. Contact them via phone or email, or schedule a face-to-face meeting to discuss your options. Many landlords are open to early termination, especially if they can re-rent the property at a higher price.

Your landlord may even offer to convert your lease to a month-to-month agreement, allowing you to move when you’re ready to purchase a home.

However, this flexibility may come with a rent increase.

Even with higher rent, moving to a month-to-month lease could save money and time as you prepare for homeownership.

2. Explore Your Lease Options

Some rental contracts include early termination clauses, allowing tenants to end their lease before the official expiration. These clauses may involve paying a fee, typically the equivalent of two months’ rent, but in some cases, landlords may waive the fee.

If your lease doesn’t include an early termination clause, try negotiating an arrangement with your landlord. They may agree to more favorable terms to avoid the hassle of finding a new tenant themselves.

Alternatives to Breaking Your Lease When Buying a Home

If your landlord won’t allow early termination, you may have alternative options, such as subletting or re-renting the property.

Subletting

Subletting allows you to find a tenant who takes over your lease, making the payments on your behalf. However, remember that your name will remain on the lease, so you’re still financially and legally responsible for the property. Ensure that you choose a reliable tenant to avoid potential issues.

Re-renting

Re-renting, however, involves finding a new tenant who will sign a new lease with your landlord. Once the new lease starts, your obligations end. Landlords often prefer this option as it provides an opportunity to raise rent.

Does Breaking a Lease Early Affect Your Credit Score?

Breaking a lease early can negatively affect your credit score, primarily if your landlord reports the broken lease to the credit bureaus.

Landlords using automated rent-payment services like Avail or Apartments.com are likelier to report missed payments, potentially dropping your FICO score by as much as 100 points.

Besides damaging your credit, breaking a lease could lead to other financial penalties, including:

• Forfeiting your security deposit
• Facing a lawsuit for unpaid rent
• Being charged additional fees

If you plan to buy a home before your lease ends, it’s best to work with your landlord to explore your options. You may have more choices than breaking your lease outright.

Are You Ready to Buy a House?

Before deciding to break your lease, it’s important to ensure you’re ready to buy a home. Having a solid plan can make the transition smoother and more financially secure.

Consider these questions to assess your readiness:

When Will I Have Enough for a Down Payment?

As a first-time home buyer, you may qualify to buy a home with as little as 3% down. That’s $3,000 for every $100,000 of the purchase price. In some cases, like VA loans, no down payment is required.

Learn more about buying a house with no money down.

Do I Have Enough Money Saved?

It’s a good idea to have at least six months of savings in the bank when you buy a home. Lenders may require three months’ reserves to pre-approve you for a mortgage.

Learn more about how much money you need to buy a house.

Am I Eligible for First-Time Home Buyer Programs?

There are various first-time home buyer programs to consider, including down payment assistance from state and municipal governments. There are also federal programs like the proposed $15,000 first-time home buyer tax credit and $25,000 down payment grant.

Homebuyer assistance can make buying a home more affordable.

Am I Pre-Approved to Buy a Home?

Before discussing your lease with your landlord, consider getting pre-approved for a mortgage. Pre-approval gives you a clear picture of your budget and shows your landlord that you’re serious about moving out.

Final Thoughts on Breaking a Lease

Breaking a lease can have serious financial and legal consequences, but you have other options. Work with your landlord to find a solution that benefits both parties. You’ll avoid damaging your credit, stay out of court, and move one step closer to buying your first home.