Should You Break Your Lease to Buy to Buy a Home?
signing a lease and getting a house key

Lessons From a First-Time Home Buyer: Should You Break Your Lease to Buy?

In a perfect world, the transition from renting to buying would be seamless — you’d find a great house to buy, close the deal, and move right into your new place. Alas, it’s rarely this easy. That’s because many renters are on a lease, which may heavily impact their timing when buying a home and limit their options overall.

This was definitely the case for us as we still had several months left on our lease when we ended up putting an offer in on a house. More recently, my sister-in-law and her husband have been under the gun as they look to find the right house before needing to re-sign at their current location. Obviously, neither scenario is ideal — and we aren’t alone in these experiences.

So, can you break your lease in order to buy a house? Let’s take a look at some potential options and what you should know ahead of time.

Can You Break Your Rental Lease? Potential Options

Check your lease

Over the course of this article, we’ll be looking at a few different scenarios and potential options. But, rather than guess what your landlord requires when it comes to breaking your lease, there’s something important you should do: check your lease!

If you don’t happen to have a hard copy handy, you may want to check any rent payment platform your landlord uses, search your email inbox, or ask your landlord for a copy. Furthermore, should you have any questions about what the terms stated in your lease mean, it may also be best to ask your landlord or management company. Alternatively, you may need to consult a lawyer — but that’s an additional expense and may only be necessary if you believe that the landlord’s interpretation is incorrect or the laws of your state/city are violated by the lease.

As you’ll see, there are some key reasons why you’ll want to understand your lease before resolving to break it. Put simply, failing to account for the impacts of breaking your lease ahead of time could have major financial consequences. So, with that in mind, let’s take a look at some common costs and considerations.

Giving notice

As you’re looking over your lease, you should find a section about how much notice you’ll need to give your landlord if you intend to vacate. Commonly, the minimum notice is 30 days, although it can vary. Because of this, even if you are able to break your lease, you may still need to pay for an additional month of rent.

This is something to keep in mind when determining a potential move-out date. Of course, complicating matters more is the fact that closing on a house doesn’t always go smoothly. So, you’ll likely want to weigh the risks and decide whether you want to give notice based on your anticipated closing date or spend a little extra on rent while you wait for your home purchase to close.

Penalties

More often than not, in order to break your lease (AKA terminate it early), you’ll be required to pay a penalty. Some common charges include paying a flat fee, paying X number of months’ rent, etc. Additionally, your lease might stipulate that early termination will lead you to forfeit any security deposit you may have had. Therefore, you’ll want to see just how much you’ll be required to pay in order to break the lease — and then decide whether or not it would be financially worth it.

Finding a replacement

Although some leases allow tenants to pay a penalty in order to terminate the lease early, this isn’t always the case. For some, their landlord may require them to continue paying rent until a new tenant is found. This is a stipulation I’ve heard family members have been saddled with. However, I’ve also heard from friends who have this arrangement as an option rather than paying a penalty for breaking the lease.

If given the choice, there are likely plenty of considerations you’ll need to make, including whether you have friends who might want to move into the place you’re leaving (making it easy to ensure your place is rented out quickly), how popular your property or rental market are, and how much longer you have on the lease overall. Personally, I’m more inclined to just pay the penalty — especially if you have several months left on the lease — but the “correct” answer will vary from person to person and situation to situation.

Month-to-month leases

So what if you’re looking at homes as your lease is set to expire but haven’t quite found a place yet? That’s where a month-to-month lease may be useful. But, of course, there are downsides to consider here as well.

Commonly, month-to-month leases carry a premium. For example, the rent may be 10% higher than it would be if you had a 12-month lease. What’s more, unlike when you’re locked into a long-term lease, this figure could continue to rise as your landlord can decide to increase rent at any time.

Once again, how tolerant you are of the risk involved in month-to-month rent will vary by situation. But, if you think you’re close to buying a house, don’t want to sign another year-long lease, and also don’t want to find a new place in the interim, then this could be the best option available.

What we did

As I mentioned, when we bought a house, we did have to break our lease — which still had several months left on it. Granted, this wasn’t the original plan. We intended to start looking at houses to get a feel for the market and then get more serious as our lease was ending. But, when we found a place we loved and that had just seen a price cut, we decided to go ahead and make an offer.

Luckily, before doing so, we knew what the consequences would be. In our case, the apartment management required a 60 day notice. On top of that, there was a penalty equal to two months of rent. Oddly, this was written into our lease as “200% of two months rent,” leading us to initially think that the penalty was a whopping four months of rent. Instead, what they meant was that we’d need to pay 200% rent as we fulfilled our 60-day notice — so, really, regular rent for two months plus the penalty.

Although we didn’t take this extra expense lightly, it turns out that we were still pretty fortunate in the grand scheme of things. Take, for example, my sister-in-law who is currently stuck between a rock and a hard place as she and her husband continue to look for homes. With their lease up next month, they’ve been trying to find a house. Now, with the clock ticking, they’re debating whether to sign for another year or opt for a month-to-month lease (which has a premium and could increase). Further complicating matters, their landlord is one of those who requires tenants to keep paying rent until a new tenant is found. So, in either case, they’re facing some risk as they look to become homeowners.

Personally, in this case, I think I’d try the month-to-month option in hopes that I’d find a house soon enough. Then, if not, perhaps we could re-sign a longer-term lease. However, there’s risk here too as the landlord may no longer offer a 12-month lease at the initial rate.

And with that, I think you can see why making the jump from renting to owning can be complicated.


On top of the numerous expenses that come with buying a home, you may have to add “paying to break or buy out your lease” to this list. Because of how financially impactful this can be, I highly recommend looking over your current lease and knowing what the cost will be ahead of time. After all, finding the perfect house and then discovering that breaking your lease is prohibitively expensive will only add to the heartache. So, if you’re a renter looking to buy, be sure to have a game plan ahead of time so you don’t run into unexpected obstacles along the way.

Author

Kyle Burbank

Head Writer ~ Fioney
Kyle is the head writer for Fioney. He is a personal finance nerd, constantly looking for new apps and services to test and incorporate into his own financial game plan. In addition to his role at Fioney, he's written for other publications including Born2Invest, Lifehack, and Laughing Place, as well as his own site Money@30. He also creates personal finance and travel-related videos for Fioney's YouTube channel, which has garnered more than 2 million views. Currently, Kyle resides in Springfield, Missouri with his wife of 10 years. Together, they enjoy traveling (including visiting Disney Parks around the world), dining, and playing with their dog Rigby.

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