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 what happens if you buy a home and still have months to go on your lease? Do you have to pay both rent and your mortgage payment until the lease expires? Or can you break the lease – and what will that cost?

Can you break a lease to buy a house?

Yes, you can break a lease to buy a home. However, breaking a lease can have consequences depending on your landlord, the rental market, and the terms of the lease.

Your lease agreement is a binding legal contract. And while you pay rent in monthly installments, 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.

There are a few ways to break a lease legally. Military personnel usually can break a lease if they’re reassigned or deployed. You also can break a lease if you’re the victim of domestic abuse. Laws vary by state, so consulting with a legal professional before breaking a lease is a good idea.

In the real world, tenants break leases all the time. 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. They must do a reasonable job of finding a new tenant and renting out the house, 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.

Even if you need to break your lease, there are ways to limit how much you’ll have to pay.

How to get out of a lease

Don’t assume that all is lost and that breaking your lease will cost you months’ rent. Talking with your landlord is important – moving out without saying anything is never a good idea.

Look for a home buying clause

If you’re lucky or had the foresight to include one, your lease has 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.

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 one to three 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.

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.

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 year-long lease.

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

Keep records

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 if things do get ugly, 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.

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.

The pros and cons of breaking a lease to buy a house

Buying a home is a major milestone, one that is as emotionally uplifting as financially prudent. So, if it means breaking your lease, it could be worth it. But at the same time, it’s important to approach the decision with your eyes wide open and only after assessing the advantages and the risks.

Pros of breaking a lease to buy a home

Breaking a lease to buy a house has advantages.

It lets you bid quickly

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

It 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.

Buying a home lets you start building equity

When you pay rent, you’re helping to pay down your landlord’s mortgage. 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.

Cons of breaking a lease to buy a home

Now, for the downsides to breaking a lease.

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. So, before deciding to break your lease, research the law and talk to your landlord.

Your credit score could take a hit

If you break your lease, you’re basically defaulting on a legally binding contract. Your landlord could send you to debt collections and report the unpaid balance to credit bureaus, potentially requiring you to repair your credit. A lower credit score and blemishes on your credit report could limit your ability to buy a home.

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.

Alternatives to breaking your lease

If you want to buy a home but are uncomfortable with breaking your lease, there are alternatives.

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. Like lease assignment, this legally requires the consent of the landlord. 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. 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.

The bottom line: Can you break your lease to buy a house?

Buying a home is an exciting, life-changing event, as well as a strong wealth-building move. And while breaking a lease is sometimes worth the potential cost, it’s wise to explore your options first. There is a good chance that you can get out of your lease legally and amicably, creating a clean break into your new life as a homeowner.

If you’re ready to stop renting and buy a home of your own, get started with Rocket Mortgage^® today.