Breaking a Lease Early to Buy a Home

Buying a new home is a big investment, and when you find the perfect one, you want to be able to submit an offer right away. Even if the down payment, closing costs, and paperwork are all organized, you can find yourself hindered by one other thing: A long-term rental lease.

Twelve-month leases tend to be the most common, and there’s no guarantee the end of the contract will line up with when you want to move into a new home. This could put you in the unfortunate position of either breaking a lease early (and facing possible consequences) or paying rent and a mortgage until your lease expires.

So what can you do in this situation? There are a few options, but first, let’s look at why someone might want to break a lease early.

Pros of Breaking your Lease

Moving into your New Home

This one is obvious but it’s worth repeating: Being able to make a move on a dream home requires being able to act quickly. Breaking your lease is one way to do so.

Building Financial Equity

Buying a home means putting your dollars toward improving your financial stability, which is something we’d all like to do. Since renting doesn’t grant you ownership, you’re not getting a return on your investment each month when you pay rent.

Cons of Breaking your Lease

Expenses

If you decide to move out early, your landlord may require you to pay some or all of the owed rent in addition to penalty fees. Since you did sign a contract to live in the rental for a designated time frame, they have the legal right to do this. Plus, you might lose your security deposit by exiting the contract early.

Credit Score Damage

If your landlord does charge fees and you refuse to pay, it can negatively impact your credit score, making it difficult for you to open a new line of credit in the future. While your mortgage application might not be impacted, you may face challenges when you need to make other major purchases.

Legal Ramifications

The rental landlord can, if they so choose, decide to pursue legal action and sue you for terminating a lease early. Even if this is resolved in your favor, a court visit will stain your credit report, making it more difficult to rent elsewhere if the need arises.

How can I break my lease?

If you want to move forward, be sure to familiarize yourself with your local policies. Laws on lease-breaking vary from state to state, so step one is knowing what you’re getting yourself into.

That being said, here are some ideas on how you can break your lease.

Look for a Homebuying Clause

Most people skim over their rental lease agreements and quickly sign at the bottom, but in situations like this, it’s worth it to take an extra look. Review your lease to see if it has a homebuying clause, which allows renters to end the lease shortly after moving into a new home. While it’s not guaranteed such a clause exists, it would be a ‘get out of the lease early’ card you can play.

Sublet or Reassign your Apartment

Your landlord might let you out of the contract early if you can find someone to take over your rent for the remainder of the lease. Remember that subletting means someone else will be responsible for paying rent but the lease remains in your name, so be selective about your tenant: Anything they do will reflect on you.

On the other hand, reassigning means ending your lease and having someone else assume all obligations. If you can find a candidate who meets the renting criteria, this saves the landlord the trouble of finding someone themselves.

Talk to your Landlord

Sometimes it’s less about the contract and more about the relationship. If you think you might need to break your lease, engage your landlord in the conversation early on. They might be willing to work with you and find a way for you to break the lease without either party being inconvenienced. Worst case they’ll say that can’t help you, so it’s worth a try.

Work with the Seller

If your landlord won’t budge, try your negotiation skills: The seller may agree to pay closing costs. If this offsets the penalties and fees you’ll end up paying for breaking your lease, it could be worth it.

If a seller is pressed to close a deal on a house, they might consider a lease buy-out option. While this rarely happens, there have been cases where a homebuilder is willing to put money toward breaking a lease early so homeowners can sign a contract.

Either way, be reasonable with what you’re asking of the seller. If you’ve already received discounts and upgrades on your new home, they may be less likely to accommodate further requests.

Is breaking a lease worth it?

Unfortunately, that depends on each situation. Look closely at your finances and consider the pros and cons of stepping out of a contract early. If you think you’ll be better in the long run, breaking a lease can be financially advantageous. However, if you’re not in a rush and confident more options will be available on the market, holding out and finishing the lease agreement is likely worth it.