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Breaking a Lease to Buy a House in 2022

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When your dream home comes on the market, you may feel pressure to make an offer and buy it. But, if you’re renting and have a lease, buying a home may lead to double payments – one for the home and one for your rent.

Double payments can be expensive. 

This guide discusses breaking a lease when you’re ready to buy a house. When you understand your options, and what’s at stake, you can make better home-buying decisions that keep you in control.

Can You Break a Lease to Buy a House?

Yes, you can break a lease if your contract allows it. Renters retain their rights to move out early. Landlords don’t care where a renter lives, after all. Landlords only care that renters pay them.

So, when you’re ready to move out, you can do it anytime. It’s not “breaking a lease” if you keep making payments. 

To break a lease means to break your contract and stop making payments. 

Breaking a contract has legal implications and can get you sued. So, before buying a home while your lease is intact, understand your lease and its options.

Some rental contracts may include a “Breaking Your Lease” section that lists legitimate reasons you can end a lease early:

  • Sudden illness or disability
  • Active military service
  • Landlord fails to maintain safety or privacy standards

Sometimes, landlords add early termination clauses, too. 

An Early Termination Clause lets renters move out at any time with 30- or 60-day notice. Early termination clauses are rare but more common when rents rise, or housing is scarce. They help landlords cycle tenants more quickly, and each new tenant is an opportunity to raise the rent.

How to Get Out of Your Lease

When you’re tired of renting, there are a few steps you can take.

1. Ask permission

The best first step is to ask permission. Contact your landlord by phone, text, or email, or schedule an appointment for an in-person meeting. 

You won’t be the first renter to ask for early termination, and your landlord may want to re-rent your home at a higher price anyway! Your goal is to find a solution that works for you and your landlord.

As one example, your landlord may be willing to convert your lease into a month-to-month contract. Monthly contracts add flexibility while buying your first home. In exchange for the right to cancel anytime, your landlord will raise your rent.

Even with higher rent, converting to a monthly contract can be a money-saver.

2. Find options in your lease

Some rental contracts include an Early Termination Clause that lets tenants move out before their lease expires. Your landlords may charge a fee for the right to terminate early, or they may charge nothing. Check your lease for language, or negotiate an early termination with your landlord in person.

Early termination fees are typically equal to two months of rent payment.

Alternatives to Breaking Your Lease When You’re Buying a Home

When landlords don’t cancel a rental agreement, they may offer renters an alternative such as subletting the home or re-renting it.

Subletting

Subletting is when you find a renter to assume your lease, move into your home, and make your monthly payments. Your landlord may background-check your subletting tenant and ask for an interview. However, your tenant assumes no legal or financial responsibility for damage to the home so take care in choosing your replacement.

Re-renting

Re-renting is like subletting, but with less risk to you and your landlord.

Re-renting is when you locate a new tenant who will start a new lease for your home. When the tenant’s new lease starts, your responsibilities end. Landlords like re-renting agreements because it’s an opportunity to raise rent without doing work to find a new tenant.

Does Breaking a Lease Early Affect Your Credit Score?

Breaking a lease early may have a harsh effect on your credit score, depending on how technologically-savvy your landlord is.

Paper-based landlords are unlikely to report a broken lease to the credit agencies. They may file lawsuits and take your matter to court, but that won’t affect your FICO.

Digital landlords use a different set of tactics. 

Automated rent-payment companies such as Avail and Apartments.com emerged in the last decade to help landlords collect rent using apps and direct payments. These apps report payment history to all three bureaus. 

On-time payments account for 35% of your credit score, so when you miss a rent payment, your FICO can drop by 100 points or more. 

Low credit scores make getting a mortgage pre-approved hard.

A broken lease may carry other financial consequences, too.

  • You may forfeit your rental security deposit
  • You may face a lawsuit for missed payments
  • You may be charged additional fees

Learn more about the credit scores needed to buy a home.

When you’re buying a house before your lease ends, then talk to your landlord and find out about your options. You may have better choices than to break your lease.

How Do You Know if You Are Ready to Buy a House?

Before calling your landlord to break your lease, it’s good to have a semi-formed plan for when you’ll move out and buy a home. Preparation will help you get your best outcome.

Here are some questions to ask yourself:

When will I have enough money for a down payment on a home?

If you’re a first-time home buyer with a decent history of on-time payments, you can buy a home with as little as 3 percent down, or $3,000 for every $100,000 in the purchase price. 

In some parts of the country, and for military members, downpayments aren’t required at all. 

Home buyers with poor credit should expect to make a down payment of $3,500 for every $100,000.

Do I have enough money saved up to buy a home?

When you buy a home, it’s good to have at least six months’ worth of savings in your bank accounts. You may feel comfortable with less money in savings or want to hold more. Most mortgage lenders require three months to pre-approve your mortgage.

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

Which first-time home buyer programs apply to me? 

First-time home buyers can access downpayment assistance programs from state and municipal governments. Plus, the federal government is proposing a $15,000 tax credit and $25,000 cash grant to first-time buyers

Not every buyer will be eligible for every program. Also, many programs are inferior to the standard 30-year fixed-rate mortgage most buyers use. Know your options and maximize your purchasing power.

Read more about first time home buyer grants and programs.

Am I pre-approved to buy a home?

Don’t talk to your landlord about breaking your lease until you’ve been pre-approved to buy a home. Getting pre-approved shows your exact budget for purchasing a new home using your actual income, employment, and credit. Without a pre-approval, you’re just guessing at what’s possible. Get pre-approved as soon as possible, so your landlord knows you’re serious about moving out.

Final Thoughts On Breaking A Lease

A lease is a contract. You can ignore a contract when you’re willing to deal with the financial and legal consequences. When you rent a home, though, you have better options than to break your lease.

Landlords are in the property management business. Like you, they seek to maximize cash flow. So, when you want to move out early, come together with your landlord to negotiate a solution. It may cost you time and money, but your credit score will stay intact, you’ll stay out of court, and you’ll be closer to finally buying your first home.

Get pre-approved for a mortgage today.

Dan Green
Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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