Breaking a lease to buy a house: Can (and should) you do it?

Many people buy a home so they can stop paying rent and start building wealth. But you may be asking, what happens if you break a lease? Do you have to pay both rent and your mortgage payment until the lease expires? Should you buy a house if you’re in a lease? Or is there a way to make it less financially painful?

These are important questions, so let’s dive into the rules regarding breaking a lease agreement, your options, and any alternatives you should consider.

Can you break a lease to buy a house?

The short answer is yes, you can break a lease to buy a home. You should consider that breaking a lease can have consequences depending on your landlord, the rental market, and the terms of the lease.

This is because a lease is legally binding, meaning you are obligated to fulfill the entire contract unless the lease includes clauses allowing you to cancel it. In other words, if you leave early, you’re still on the hook for all future payments.

However, it’s also not so black and white. There are situations in which you can legally break a lease. For instance, military personnel can break a lease if they’re reassigned or deployed. You also can break a lease if you’re the victim of domestic abuse.

If you believe you might want to buy a home soon, you can try to find a landlord offering a lease-to-own agreement, which gives you the option to buy the home you’re leasing in the future.

If you believe you meet the conditions to break a lease, it’s a good idea to first closely review your lease document and consult a legal professional before acting. The Rocket Mortgage rent vs. buy calculator can also be helpful when making this decision.

What happens if you break a lease?

The legal and financial ramifications of breaking a lease vary by state and situation. It also depends on how it’s done and the relationship you have with your landlord and their actions.

In most states, if you break a lease, the landlord is prohibited from taking no steps to re-rent their property and then demanding full payment for the remaining months on the lease. Instead, they must try to find a new tenant and are not allowed to charge you for the months the new tenant pays rent.

If a landlord takes you to court, they usually get a judgment for at least one month’s rent in damages. So, expect to lose your deposit and potentially at least the amount of a month's rent. Of course, situations and outcomes can change depending on the language of your specific lease as well. For instance, your lease could have clear language regarding a lease early termination fee, which can range from one to three months’ rent.

Practically speaking, breaking a lease to buy a home becomes a math problem. Is the cost worth it? To determine this, you should review your lease and consult a legal professional before giving your notice.

How to get out of a lease to buy a house

If you’re determined to break your lease to buy a home, you should make your best efforts to mitigate the financial cost. Open communication with your landlord is key. They might be sympathetic to your situation. Next, explore all your options. Here are a few to take into consideration.

Look for a home-buying clause

If you’re lucky or had the foresight to include one, your lease may have a home-buying clause, which allows you to end your lease early if you buy a home.

Such clauses usually require you to give your landlord sufficient notice – typically about 60 days – and provide proof of your home purchase. There may still be a fee, but it’s likely less costly than if you didn’t have this option.

This is probably the most painless option for breaking a lease to buy a house. But don’t get your hopes up if you didn’t request one when signing the lease, because home-buying clauses are not common.

Buy your way out

If you don’t have a legal way to break your lease, probably the most straightforward exit strategy is to buy your way out.

Leases often include a termination fee you can pay to end your lease early. These fees can be steep, costing anywhere from 1 – 3 months’ rent.

If your lease has no early termination fee or clause, you can try to negotiate one with your landlord. Appeal to your landlord’s practical side: If you both agree on an early termination fee, they could come out ahead by renting the unit sooner, possibly at a higher price, essentially allowing them to earn more than if you had stayed.

In either case, your landlord may require a notice period or a property inspection before agreeing to a buyout.

Switch to a month-to-month rental agreement

If you think you may buy a home before your lease expires, you can ask your landlord to switch you to a month-to-month rental agreement. This usually lets you terminate the deal with 30 days’ notice and avoid fees or penalties.

However, renting month-to-month has risks. The same short notice you enjoy will likely also apply to your landlord. So, you could be asked to move out before you find a new home. For this reason it’s a good idea to keep a moving check list at the ready.

Also, if you are in a seller’s market, where rents are increasing, it could allow your landlord to raise the rent. The same goes for seasonal or vacation areas, where one season is typically pricier than others.

Finally, your landlord might ask you to pay for the privilege of a month-to-month agreement. In other words, they might demand a higher rent to increase their cash flow than if you signed a yearlong lease.

These are all things to consider against the benefits of being able to move quickly when buying a home that you fell in love with.

Keep records of all communication

Regardless of which approach you take, keep copies of all records, including your lease and communications with your landlord, such as emails, letters, or contemporaneous notes of conversations. Remember, your lease is a legally binding contract, so you’ll want proof of what was or wasn’t agreed to.

This is especially true if things become litigious or your landlord reports you to credit bureaus. This could damage your credit and make it harder to obtain future financing.

So, document everything, ask for receipts of any payments you make, and always put agreements in writing. Chances are, you will never need them. But if you do, you will be glad you took precautions.

What are the pros of breaking a lease to buy a house?

When done properly and for a good reason, breaking a lease to buy a house comes with some advantages.

It lets you bid quickly

You often need to move quickly to make a successful offer on a home that’s in a desirable neighborhood or priced to sell. Breaking your lease can let you buy a home you can afford, making it worth the cost.

This can also help you take advantage of a buyer’s market with lower interest rates. In these competitive markets, being able to bid quickly can mean the difference between winning and losing a deal.

You can start building home equity

When you pay rent, you’re helping to pay down your landlord’s mortgage. But when you pay your mortgage, you build equity and invest in your future. Any financial sacrifices you might make by breaking your lease could be worth it in the long run.

You can stabilize your housing costs

One huge benefit of owning a home rather than renting is the potential stability of your monthly mortgage payment. If you acquire a fixed-rate mortgage, your monthly payment remains the same for the life of the loan, which is usually decades long. When you rent, your monthly payment could change with every new lease.

While the stability of a monthly payment provides peace of mind, owning a home does come with cons as well as the pros. For instance, as a homeowner, you need to plan for financial hits from unexpected repairs, not to mention the costs of regular maintenance and upkeep, homeowners insurance, and property taxes.

Breaking your lease isn’t always expensive

While breaking a lease sounds expensive – and often can be – it doesn’t have to be. If you are near the end of your lease, have a good relationship with your landlord, or can find an alternative, breaking your lease could be less financially painful than you think.

What are the cons of breaking a lease to buy a house?

As with most things in life, the decision to break a lease to buy a house comes with potential downsides as well. Here are a few to consider.

You may have to pay the remainder of the lease

You could be on the hook for full payment of your lease, even if you move out before it expires. That can be a serious financial hit that can affect your ability to make a down payment on a home or pay closing costs on a mortgage. So, before deciding to break your lease, research the laws in your state and talk to your landlord.

Your credit score could take a hit

Breaking a lease doesn’t automatically affect your credit score. However, if things don’t go as planned, it can. For instance, if a collection agency gets involved for the unpaid rent or a landlord reports the delinquency, your credit score could drop.

One of the major consequences of a poor credit score is that it could make it more difficult to qualify for a mortgage. And even if you do qualify, generally speaking, the lower your credit score, the higher your interest rate. There are ways to repair your credit score, but it can be arduous.

It could hurt your rental history

References mean a lot to landlords. If you break your current lease, you could lose a good reference from your landlord, which may limit your options if you need to rent another place to live.

Try to mitigate the damage by talking to your landlord before you break your lease. Communication goes a long way. Also, review your lease and fulfill your end of the bargain. Finally, leave the property in excellent and clean condition. A positive exit can go a long way to keeping your good reputation and getting a positive reference.

Alternatives to breaking your lease

If breaking your lease doesn’t make sense, there are alternatives worth exploring. Here are a few to consider.

Assign the lease

Through lease assignment, you find another renter to take over your lease. This is different from subletting in that you are legally relieved of all obligations of the lease.

Just know that the landlord’s consent is usually needed. If the landlord doesn’t release you of liability, you could be held responsible if the new tenant defaults.

Sublet your apartment

If you can’t find a tenant to take over your lease, you could try to sublet your house or apartment. You become the sublessor to the new tenant, the sublessee. Think of yourself as their landlord, setting the terms of the rent and obligations.

As with a lease assignment, this legally requires the landlord's consent. Also, in this arrangement, you are still legally responsible for the lease and all its requirements, so choose your sublessee wisely.

Ask the seller to delay closing

Closing delays are common, usually to settle issues related to the title or your credit score. Closing times are variable as well. But if the seller really wants the sale of their home to go through, it’s not unreasonable to ask them to delay your closing.

However, make sure all parties agree to the delay since a delayed closing can result in costs and fees, such as a change in the interest rate or closing costs.

Should you break your lease to buy a house?

Breaking a lease to buy a home should not be taken lightly. In the right circumstances, it can be a great move. But there are times when it might not make sense.

It may be worth it if:

• You’ve found your dream home at a great price
• Your landlord is cooperative
• The costs of breaking the lease make sense
• You’re ready for homeownership financially

It might be better to wait if:

• Your lease ends soon
• You’ll pay high financial penalties
• You don’t have significant savings
• The housing market is unstable

Ultimately, everyone’s situation is unique. There are times when renting makes better sense than buying and vice versa. A great first step to finding out where you stand is to use the Rocket Mortgage rent vs. buy calculator.

The bottom line: Breaking a lease to buy a home can sometimes make sense

Breaking a lease to buy a house is possible, but it sometimes comes with substantial financial and other costs. For instance, unless you have a specific clause allowing you to break your lease in the lease itself, you may be obligated to pay early termination fees, one or more months’ worth of rent, or other penalties. Legal action and credit score hits are also a possibility.

There are many situations, depending on your state laws, when you can legally break your lease without penalty. And even when you can’t, there are situations when breaking your lease to buy a home is worth the cost. Ultimately, if you’re thinking of breaking your lease to buy a house, you need to carefully weigh the pros and cons, explore all your options, and seek alternatives.

When you’re ready to become a homeowner, you can apply for a mortgage with Rocket Mortgage.