Breaking A Lease To Buy A House: What To Expect

When you sign a lease with a landlord to live in a house or apartment, you sign a legally binding agreement. A lease outlines an agreement between a lessor (landlord) and a lessee (you) and the contract terms for which you will live on a property and make payments to your landlord.

A lease typically lasts one year, but it can last any length of time.

When a lease ends, one of a few typical things may happen:

• The tenant moves out.
• The landlord and tenant sign a new lease with the same or different terms.
• The tenant stays in the rental even though the landlord wants them to move, causing an eviction to occur.

But what happens when you want to buy a house while you're still renting? Is breaking a lease to buy a house possible? Let's find out.

Can You Break A Lease To Buy A House?

Yes, you can break a lease to buy a house, but you typically can't do so without a landlord's permission. Note that your state's laws may come into play – your state's laws may affect what your landlord can do about your lease.

If your landlord agrees to let you out of your lease early, get it in writing that they will agree to it.

Consider contacting a tenant's union or legal aid organization to know your rights – they work to protect tenants and let them know what you can and can't do when you break a lease early when home buying.

Legal Implications Of Breaking A Lease

What are the legal implications of breaking a lease?

The consequences typically depend on your situation and state laws. If you break the contract without indication that you plan to do so, your landlord could take you to court. On the other hand, you might be able to move out without further liability. In some states, landlords must make a reasonable effort to rent out the dwelling.

Read your contract and check out your state's laws – you can find out when it's justifiable to leave early in the legal sense, the amount of notice you need to provide and what to do if you don't have a legal reason to break the lease.

How To Break A Lease To Buy A House

Let's walk through the steps for how to break a lease to buy a house.

Talk To Your Landlord

The first thing you have to do is ask if your landlord will let you out of your lease. Once you explain your situation, your landlord may agree to let you go, especially if they know they can rent your space to someone else fairly easily. This is the most important step. You never know – your landlord's answer may be a swift, "No problem!" 

Ask For A Home Buyer Clause

Some leases have a home buying clause, meaning you can terminate your lease early if you've purchased a new home.

The key? It's simple: You must give your landlord or property management company advance notice.

Buy Out Your Lease

You may also be able to "buy your way out" of a lease with a termination offer for breaking the lease early. What does it mean to buy out of a lease?

You pay an early termination fee, such as a minimum of 1 – 2 months' rent, plus an added penalty for breaking the lease. Note that you might lose your security deposit.

Request A Monthly Lease

If you explain to your landlord that you're buying a home and need to move, they may switch you to a monthly lease, which means you agree to stay in the house a month at a time instead of a full year.

Why is this beneficial? It can give you more flexibility when you move out without incurring extra costs. Note that your landlord may want you to pay more for a month-to-month lease.

Alternatives To Breaking A Lease

What might you want to do as an alternative to breaking your lease agreement? Let's look at some options.

• Subletting: You can consider subletting your space, which means renting to a new tenant who takes over your lease. However, you must check to ensure that your landlord allows subletting. Plus, the tenant replacing you must be trustworthy because the lease is still in your name. You'd be responsible if the subletters destroy the space.
• Postpone closing: Consider delaying or changing the closing date of the home you purchase to coincide with when your lease will end. The seller may agree to push out the closing date to match the lease end date.
• Find a new tenant: Instead of subletting, your other option is to find a new tenant on the landlord’s behalf. It might take the pressure off your landlord to find someone to replace you. Make sure your landlord knows you’re working to find a new tenant and keep them updated on your progress.  

Should You Break A Lease? Pros And Cons

Is breaking a lease to buy a house worthwhile? Talk to your landlord about it because they may allow you to break the lease. Check out the following pros and cons.

Pros

The benefits of breaking a lease to buy a house include the following:

• Can move into a home sooner: Breaking a lease to buy a house allows you to move into a house sooner. Breaking a lease would prevent you from having to pay rent and a mortgage simultaneously, which could put pressure on your finances.
• Become a homeowner: If you have a major goal of becoming a first-time homeowner, it comes with a whole host of perks, including tax breaks, an asset for your heirs and building roots.
• Start building equity: Equity refers to the amount of money you've paid off on your home after subtracting your current mortgage balance and any additional liens from your property's current market value. In other words, it's the amount of home that you own. You can borrow from the equity in your home or sell your home for your profit later.

Cons

The challenges or drawbacks to breaking a lease to buy a house include the following:

• Financial loss: Breaking a real estate rental agreement can incur financial penalties, which may not be ideal when you need to save for a down payment and closing costs.
• Damage to credit score: You could experience damage to your credit score if you owe your landlord and skip town. Why? Your landlord could report you to the credit bureaus and possibly even send a collection agency to chase after you to regain what you owe them. It can impact your credit for years.
• Legal implications: You may face consequences if you break a lease illegally. Your landlord could take you to court, and you may incur court costs and other fees due to breaking your lease.

The Bottom Line

Can you break a lease to buy a house?

If you're thinking about breaking a lease to buy your dream home, you may be able to, depending on the terms and conditions of your lease. However, breaking it can have legal, financial and credit consequences. Check with your state and your lender for more information and your potential steps forward.

Are you ready to go from renter to homeowner? Start on a mortgage application today.