Many renters eventually find themselves in a situation where they must exit their lease to move into the home of their dreams.
Sometimes, the lease comes to a natural end; but often, the timing doesn’t quite align as one would hope.
What's in this article?
Read on to learn whether renters can break a lease to buy a house, what could happen if you do and how to approach it so you can make the right decision.
Can you break a lease to buy a house?
The short answer is yes: Renters usually have options for breaking their lease to buy a house.
The long answer is that it depends on how you go about this, and how it works depends on your lease agreement and your landlord.
Legal considerations
A lease is a legal and binding contract between a tenant and the landlord, and there can be consequences if either party breaks the contract.
If you’re considering breaking your lease, the first step is to review your lease agreement.
Many leases will outline scenarios where it’s acceptable to end the lease or at least explain what’s required of you if you intend to terminate the agreement.
Financial considerations
Generally, there are certain conditions for termination, such as a required notice period, finding a replacement tenant or paying a fee.
If you are required to pay a fee to break the lease, this could impact your homebuying plans.
Some fees range from one to several months’ rent. You also may have to forfeit your security deposit.
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What could happen if you break your lease?
With proper preparation, you shouldn’t have any issues breaking your lease. However, here are the best- and worst-case scenarios to prepare for any outcome.
Worst-case scenario
The worst-case scenario for breaking your lease should only occur if you fail to meet the requirements, such as leaving without notice or paying the fees.
In this instance, your landlord could sue you for breach of contract.
Best-case scenario
Fortunately, the best-case scenario is much more common.
As long as you have read your lease agreement, contacted your landlord and provided adequate notice, they likely will have no issue with you leaving.
Can you afford it?
Even in the best case, you may still be required to pay a fee to exit the lease early.
It will be up to an individual homebuyer to determine whether they can cover this fee.
How to get out of a lease
With these considerations in mind, let’s discuss the steps to break your lease.
1. Reach out to your landlord
Using their preferred method of communication, contact your landlord and explain your situation.
Be honest, direct and open about your plans to buy a home and your need to break the lease.
2. Give proper notice
If you can honor the notice period, let your lender know you have read your lease agreement and are giving the requested notice.
However, there may be times when it’s necessary to negotiate your terms to accommodate your homebuying plans.
3. Negotiate your terms
The most common negotiated terms include:
- Early termination fees
- Notice period
If you need some flexibility, you can proactively approach your landlord by acknowledging the lease terms and suggesting alternative solutions.
4. Keep a record of all communication
The tenant and landlord must agree upon any changes to the lease agreement.
Make sure the changes are documented in writing and signed by both parties.
Alternatives to breaking your lease
There may be certain scenarios in which you are unable to break your lease, such as:
- The landlord is unwilling to negotiate.
- The financial penalties are too great.
- Your lease doesn’t allow early termination.
In that case, let’s discuss some alternatives to breaking your lease that may better suit your situation.
Buy out your lease
If you can’t break the lease without penalties, you may be able to negotiate a lease buyout.
With a lease buyout, you and your landlord will negotiate a lump-sum payment that you will pay to end the lease early.
Sublet your apartment
If your landlord approves, you can find a tenant to take over your rental for the remainder of your lease term.
The lease will remain in your name, so it will be important that you choose a subletter carefully.
Find another tenant
Some landlords who don’t allow subletting may still allow you to find another tenant so you can end your lease. Unlike subletting, this option removes you from the lease entirely.
Because this option removes the burden of finding a new tenant from the landlord’s shoulders, they may be more willing to accept such a possibility.
Should you break your lease to buy a home?
Now that you know you can break a lease, it’s essential to consider whether you should.
Let’s examine the benefits, risks and considerations of breaking your lease to buy a home.
Benefits of buying a home now
- Start building equity: After years of paying rent, you can now build equity in your home and enjoy the potential benefits of appreciation.
- Stable housing costs: Rent can increase annually without warning. Homeownership is a more stable investment, especially if you opt for a fixed-rate mortgage.
- Control over your living space: You can remodel, renovate and upgrade your home’s features to suit your taste and style. (You no longer have to wait for approval from a landlord!)
Risks associated with breaking a lease
- Financial penalties: Early termination fees or other costs associated with breaking a lease may hurt your budget more than it’s worth.
- Impact on credit: If you don’t gracefully exit your lease, you can be hit with legal actions and a negative impact on your credit score. This may hurt not only your chances of renting again someday but also your chances of buying a home.
Take the first steps: Apply today with Compass Mortgage
As long as you are in good financial health and can easily exit your contract, breaking your lease to buy a home may be a smart decision.
Compass Mortgage is ready to help with our distinctive Get Committed® program.
The Get Committed® program allows you to go through most of the process to secure a loan commitment and lock in your interest rate—even before you make an offer on a home.
Don’t delay—get started with Compass Mortgage now!