If you are a renter and planning to buy your first home, it is definitely a big step in your life. This also raises important questions. What happens to your rental agreement if you find suitable housing before it expires?Simply put, you can break your rental agreement when you buy a home, but just because you buy a home doesn’t mean you can automatically move out without penalty. What happens depends on the terms of your rental agreement and your state’s laws.
This Redfin article answers questions about breaking a lease if you buy a home. Whether you’re looking to buy a home in Cincinnati, Ohio or are starting to consider putting your home on the market in Raleigh, North Carolina, here’s what to consider if you need to end a rental agreement.
Important points
Purchasing a home alone is usually not a legally protected reason for early termination. You can also end your lease and buy a home, but there may be financial consequences. Read your lease agreement to understand the consequences of ending your lease early. Consider negotiating rates with your landlord, finding a new tenant, or subletting.
Can I cancel the rental contract if I buy a house?
Yes, if you buy a home, you can technically break the lease, but there may be consequences. Your results will depend on the terms of your lease agreement and the steps you take to end your lease.
Possible consequences
A lease agreement is a legally binding contract between you and your landlord or property manager, and both parties are expected to abide by the terms and conditions stated in the agreement.
If you terminate your lease early, you are technically in breach of the contract unless you are within your rights as stated in the contract. One common consequence of breaking a lease early is a financial penalty. These can be expensive and can impact your home buying budget and credit score.
Reasons why you can cancel your lease contract
There are several reasons why you can break a rental agreement without repercussions, but buying a home is usually not one of them. Often valid reasons include:
You are an active military member on deployment or reassignment You are a victim of domestic violence Your rental agreement was illegal Your landlord has not adequately maintained the property as described in the rental agreement Your landlord has violated the terms of the rental agreement
There are usually steps that need to be followed, such as providing proper notice to vacate and a letter to the landlord. Laws vary by state, so be sure to consult an attorney.
How to cancel a rental contract to buy a house
If you’re considering buying a home, there are several options you can choose from to better understand how to break a lease. Here are some things you can do.
Please review your lease contract
The first step is to review your lease agreement. This document explains why you can break your lease without penalty, what happens if you break your lease early, and other options you may have.
The rental agreement may contain the following information:
Early termination fees: If you end your lease early, you may have to pay an early termination fee. In most cases, the one-time payment is two to four months’ worth of rent. You may also risk losing your security deposit or incurring additional fees to find a new tenant. Lease buyout: You may have the option (and in some cases, you may have to) buy out the remaining lease. This means paying all remaining lease payments. If you have a few months left on your lease, the cost could be higher. Mortgage clause: Although uncommon, your lease may include a home purchase clause or mortgage clause. This clause may allow you to end the lease if you purchase the home. These typically require additional certification and an extended notice (often 30-60 days).
Please talk to your landlord
Talk to your landlord or property manager, depending on the options listed in your rental agreement. Maybe they can negotiate with you. If rental demand is high in your area, you may be able to get out of your lease early. Other options include asking for a reduction in early termination fees, adjusting the notice period to vacate the unit, or finding a new tenant.
Change to monthly contract
You can also ask if your landlord will convert your rental agreement to a month-to-month agreement. A month-to-month rental agreement gives you more flexibility because you’re not locked into a one-year lease. Generally, 30 days’ notice to vacate is required. However, month-to-month contracts can be more expensive than long-term leases.
Keep all records and documents
Regardless of how you end your lease, save all communications with your landlord, including emails, messages, signed documents, previous and new rental agreements, current and past payments, etc. Any changes to the lease agreement must be in writing and signed by both parties. If you have any problems, we have all the necessary documents.
Advantages and disadvantages of canceling the rental contract and buying a house
Advantages of canceling the rental contract
Buy the right home: If you’re looking for a home and find one that meets your needs, budget, and long-term goals, it may be the right move to end your lease early. Penalties may be manageable. Depending on your lease agreement, breaking your lease may not be as expensive as you expected. For example, if your lease is nearing the end, early termination fees may be within your budget. Build equity faster: Buying a home helps you build equity. If you’re in good financial shape, buying a home now can help you start building wealth faster than paying rent over several months.
Disadvantages of canceling a rental contract
Financial penalties: If you have to buy out your lease or have to pay multiple months of rent as a penalty for breaking a lease early, it can be expensive. Potential impact on your credit score: Your landlord may report lease violations to the credit bureaus, which could affect your credit score. If you don’t make the appropriate payments or stop paying rent, your credit score may be affected and your landlord may be tempted to try to collect on your debt. Impact on Rental History: Termination of a lease is typically noted on the Rental History Report. If that happens, it may become difficult to rent in the future. If you need a referral from your landlord in the future, they may not be able to provide you with a suitable referral.
Alternatives to terminate the lease agreement
There are several ways to break a lease, some of which are discussed above.
Negotiate lease purchase
In some cases, a lease buyout may be the best option. This will ensure there will be no “lease expired” marks in your rental history and may be cheaper than early termination fees if your contract is nearing the end of your contract.
sublet your apartment
If your rental agreement allows subletting, you can find a subtenant who will pay your rent for the remainder of the term. The landlord may require the tenant’s approval, and you will be responsible if the tenant is late on rent.
Find a new tenant
Also known as a “lease assignment,” a landlord may allow you to find a new tenant to take on a new lease for your apartment. As long as you find a new tenant for the unit, the landlord may allow you to break the lease with less repercussions.
Negotiate a later deadline
If you’re considering buying a home, consider negotiating to delay the closing date. This is especially helpful for sellers if they are looking to purchase a new home, as it allows them more time to close.
Should I cancel my rental contract to buy a house?
Ultimately, whether you want to break your lease if you buy a home depends on your financial situation and your homebuying goals. If you don’t plan on renting again in the future and the early termination fees aren’t as high as you expected, it may make sense to break the lease. However, if you end up having to pay multiple months’ worth of rent as a result of breaking your lease, it may be wise to wait to buy a home.
