Renters can break their lease to purchase their own home but they should understand the ramifications of leaving early
(NewsNation) — Renters who are hoping to transition over to homeowners may have to break their existing lease, but doing so may require some planning and effort, according to mortgage experts.
A residential lease is a legally binding contract, which creates consequences if the agreement is broken before the lease is up. However, because house hunters can never be certain when their dream house may present itself, breaking a lease may be the only way for timing to work out.
Homeownership allows Americans to save money on their monthly housing costs in many cases and leads to building equity in a residence rather than helping pay someone else’s mortgage. However, real estate experts warn renters to know what they are getting into before moving ahead – especially if they are planning on leaving their rental property early.
Renters can get out of their lease agreements but should work with their landlord and should be prepared to pay a penalty to get out of their lease early, according to experts from Rocket Mortgage.
Each state has its own lease-breaking laws, meaning that penalties and consequences for getting out of the deal early vary from place to place. To avoid being the target of a landlord or property management company, renters should make sure they understand what their lease says about the terms of the agreement.
Ways to get out of an existing lease
Leases may have language built into them that allows for renters to get out of their agreement early due to purchasing a home. Rocket Mortgage experts say that if such a clause exists within the lease, renters have the right to terminate their lease after they have purchased a home but only if they have given proper notice to their landlord.
Renters are advised that should their landlord agree to let them out of their lease early, such a pact should always be done in writing to avoid any future conflicts. Based on respective state laws, landlords have the legal right to take a renter to court and sue over a broken lease.
In addition, experts said that breaking a lease can impact a renter’s credit score as landlords can send unpaid balances and rent to collection agencies, which can then report those findings to the three major credit bureaus.
Moving out without alerting anyone is rarely a good idea, experts say. However, working out an agreement with a landlord or property management company is possible but must be done through open dialogue. Most landlords require at least a 30-day notice that residents will be moving out of a rented space, which again puts the responsibility of the renter to understand what is in their lease agreement.
Renters may also have the ability to buy their way out of their existing lease by negotiating a certain portion of the remaining months that they would pay, experts say. Paying an early termination fee may be part of that financial solution, but renters should be prepared to buy out 1-2 months of their lease at a minimum as well as a fee for early termination of the agreement.
If renters know they are hoping to purchase a home, shifting to a month-to-month agreement rather than a traditional lease may also help them avoid trouble with getting out of the agreement. However, some landlords or property management companies charge higher monthly rental rates for month-to-month arrangements.
If renters are not able to find a viable way of getting out of their lease, experts at Rocket Mortgage say that there are other options. Subletting a space to another renter who would essentially take over the existing lease is one such solution.
However, renters must research whether their landlord allows for that possibility. A replacement renter should be trustworthy, experts say, as the original renter’s name will remain on the lease for the duration of the agreement and will be liable if the rental space is damaged.
Another option for renters is working on a landlord’s behalf to find a new renter for the home or apartment being leased. By doing so, the current renters ensure that a landlord will not lose money while a residence sits empty while the property owner searches for a new tenant. Unlike subletting, working to find a new renter does take the existing tenant off the lease, which frees them to move ahead with purchasing a new home.
Home buyers can also delay the closing of their new home to allow for the existing lease to be completed. Experts say that in many cases, the seller of the home will often work with a potential buyer to allow them to schedule the home closing to coincide with the lease’s completion date.