What Can Happen if I Break a Lease to Buy a House?
Finding a house at an affordable price may prompt you to break your rental lease and buy the home. But before terminating your lease early to buy a house, make sure you fully comprehend the possible repercussions.
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Credit Report
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Breaking a rental lease to buy a house can damage your credit report. Talking with your landlord and asking permission to break your lease can avert credit problems if your landlord agrees to terminate without penalty. But if not, your landlord may report the breach of contract to the credit bureaus. This information can stay on your report for seven years and cause your credit score to drop. Breaking a contract can result in future financing problems, where future lenders and creditors may reject your application because of past issues.
Collection Agency
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In an effort to recover funds from breaching a rental contract, your landlord may use a collection agency to telephone and send letters. Collection agencies are persistent, and some employ harassing methods such as telephoning several times a day, phoning your place of employment and threatening legal action. Ignoring a collection agency can trigger a collection account on your report.
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Payoff Agreement
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You're liable for the remaining lease balance, and to recover funds, some landlords pursue legal action in small claims court, where they go before a judge to receive compensation. Because terminating a lease to buy a house is breach of contract, the judge reviewing your case will likely require full payment of the remaining lease balance. For example, if you broke the lease with five remaining months, you'll owe your landlord five months of rent payments. Paying off the balance can help alleviate credit problems.
Alternatives
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Avoid problems with rental leases by asking your landlord for a month-to-month agreement once you decide it's time to purchase a home. This way, you can give a 30-day notice if a property becomes available. If this isn't an option, consider subletting your apartment for a few months in order to buy a house without jeopardizing your credit rating, or offer to pay off the lease and remain on good terms with your landlord.
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