When your dream home becomes available for purchase, you may feel compelled to make an offer. If you are currently renting and have a lease, purchasing a home may require you to make two payments: one for the home and one for your rent. 

Double payments can be expensive. 

You'll need to break your lease when you're ready to buy a house. If you understand your options and what's at stake, you can make better home-buying decisions that keep you in control.

 

Can You Break a Lease to Purchase a Home? 

Yes, if your lease allows it, you can break it. Renters retain the right to leave early. After all, landlords don't care where their tenants live. Landlords only care that their tenants pay their rent. 

So, before you buy a house while your lease is still active, make sure you understand it and your options. Some leases may include a "Breaking Your Lease" section that lists legitimate reasons for breaking a lease early, such as:

• Unexpected illness or disability 
• Ongoing military service
•  The landlord fails to uphold safety and privacy standards

Early termination clauses may also be included by landlords. Renters with an Early Termination Clause can leave at any time with a 30- or 60-day notice. Early termination clauses are uncommon, but they become more common when rents rise or housing becomes scarce. They help landlords cycle tenants quickly, and each new tenant represents an opportunity to raise the rent.

 

How to Break Your Lease 

1. Request permission 

Asking permission is the best first step. Contact your landlord by phone, text, or email, or make an in-person meeting appointment. 

You are not the first renter to request an early termination, and your landlord may want to re-rent your home at a higher price anyway! Your goal should be to find a solution that works for both you and your landlord.

Your landlord, for example, may be willing to convert your lease to a month-to-month contract. Monthly contracts provide more flexibility when purchasing your first home. Your landlord will raise your rent in exchange for the right to cancel at any time.

Even if your rent is higher, switching to a monthly contract can save you money. 

2. Look for options in your lease. 

Some rental agreements include an Early Termination Clause, which allows tenants to leave before their lease expires. Your landlords may charge a fee or charge nothing for the right to terminate early. Check your lease for specific language, or negotiate an early termination in person with your landlord. 

Early termination fees are usually equal to two months' rent.

 

Alternatives to Breaking a Lease When Buying a House 

If a landlord does not cancel a rental agreement, he or she may offer renters an alternative, such as subletting or re-renting the property. 

Subletting 

When you find a renter to assume your lease, move into your home, and make your monthly payments, you are subletting. Your landlord may conduct a background check on your subletting tenant and request an interview. However, your tenant bears no legal or financial responsibility for damage to the property, so choose your replacement carefully. 

Re-renting 

Re-renting is similar to subletting, but it poses less risk to both you and your landlord. 

When you re-rent your home, you find a new tenant who begins a new lease. Your responsibilities end when the tenant's new lease begins. Re-renting agreements give Landlords the opportunity to raise rent without having to do any work to find a new tenant.

 

Does Early Lease Termination Affect Your Credit Score? 

Depending on how technologically savvy your landlord is, breaking a lease early may have a negative impact on your credit score. 

Landlords who rely on paper are unlikely to report a broken lease to credit bureaus. They may file lawsuits and take your case to court, but this will have no effect on your FICO score. 

Digital landlords employ a unique set of strategies. 

These automated rent payment companies have emerged in the last decade to help landlords collect rent through apps and direct payments. These apps send payment information to all three bureaus. 

On-time payments account for 35% of your credit score, so missing a rent payment can cause your FICO score to drop by 100 points or more.

Low credit scores make it difficult to get a mortgage pre-approval. 

A broken lease may also have financial ramifications. 

• Your rental security deposit may be forfeited. 

• You could be sued for late payments. 

• Additional charges may apply. 

If you want to buy a house before your lease expires, talk to your landlord about your options. You may have better options than breaking your lease.

 

How Do You Know If You're Ready to Purchase a Home? 

Before calling your landlord to break your lease, make a rough plan for when you'll move out and buy a house. Preparation will help you achieve your goals. 

Consider this: 

First-time home buyer programs

State and municipal governments offer down payment assistance programs to first-time home buyers. In addition, the federal government is proposing a $15,000 tax credit and a $25,000 cash grant for first-time home buyers. 

Each buyer will not be eligible for every program. Furthermore, many programs are inferior to the standard 30-year fixed-rate mortgage that the majority of buyers use. Know your options and make the most of your purchasing power.

Savings

When purchasing a home, it is recommended that you have at least six months' worth of savings in your bank accounts. You may feel more at ease with less money in savings or wish to keep more. Most mortgage lenders require a three-month pre-approval period.

Pre- Approval

Do not discuss breaking your lease with your landlord until you have been pre-approved to buy a home. Pre-approval demonstrates your exact budget for purchasing a new home based on your actual income, employment, and credit. You can only guess what's possible without a pre-approval. Get pre-approved as soon as possible so your landlord knows you mean business.

Final Thoughts

A lease is a legal agreement. You can break a contract if you are willing to face the financial and legal consequences. When renting a home, however, you have better options than breaking your lease. 

Landlords are involved in property management. They, like you, want to maximize cash flow. So, if you want to leave early, work with your landlord to come up with a solution. It will cost you time and money, but your credit score will remain intact, you will avoid court, and you will be one step closer to finally purchasing your first home.