It is important to rent an apartment or house in case you are still waiting for the right time in life to buy your own home. However, breaking a lease before it expires also has ramifications when any of the parties is seeking to buy a house. In this blog post, we’ll delve into the effects of failing to honor a lease agreement on the ability to secure financing for a home purchase.
What does a Broken Lease mean?
First of all, it is necessary to understand what actions can be considered a the violation of lease agreement. A broken lease therefore refers to the act of terminating the tenancy before the agreed lease period in the rental housing unit. Reasons for breaking a lease may include:
- Job relocation
- Family or financial changes are some of the most common reasons, and there are plenty more out there that are very valid.
- The problems associated with the actual area of the rented house or flat
In any case, it is unlawful to terminate a rental agreement early and it results in forfeiture of your deposit, fines, and detrimental record with your prospective landlord.
The penalties for failing to honor a lease agreement are as follows
When you break a lease, several things can happen:
- You could lose your security deposit altogether.
- You may be required to pay rent for any period that is left on your lease.
- A landlord may also seek legal redress against you to recover the costs.
- This can manifest as an eviction on background checks
The losses are not just mere dollars and cents but might be in millions depending on large-scale operations. What many renters fail to consider is that this can also have a direct effect on the buyer’s ability to secure a loan and get a home in the foreseeable future.
This section aims to show how it affects qualification for a mortgage.
Banks assessing your eligibility for a mortgage take into account your history and credit score. They want to hear back about a clean credit history, a good record of renting homes, and no blemishes on their credit report. Excessive movement or defective covenants translate to being a high-risk borrower in the eyes of the lenders. Specifically, breaking a lease can hurt mortgage qualification in a few ways:
Late Payments
When you are on the bad side of the landlord and you have been asked to compensate for the money used to cover the loss occasioned by a breached lease, such monies have to be cleared out before you can be granted a mortgage. Having outstanding debts and paying your bills rather late will cause a low credit score on your credit report. The credit score has to be at least 620 to 700 before one is considered eligible to get a loan from most lenders.
Eviction Record
It is important to understand that even though a landlord may not formally evict you, they may write down that you moved out early. This could manifest itself in something as simple as an eviction record running a tenant background search. Lenders are extremely sensitive to applicants with evictions, as they reasonably suspect that you may stop paying the mortgage as well.
Employment Gaps
The reason you broke the lease also matters Out of the three scenarios, it is clear that whether or not you broke the lease as well as the reason behind it is of essence. If you moved out of your previous rented accommodation before the end of your tenancy due to job loss or career change, this can cause doubts regarding your employability status. Mortgage lenders prefer their borrowers to demonstrate a good income stream now and for the future to ensure that the mortgage can be paid.
Additional Scrutiny
In some instances, a bad credit record due to a broken lease may lead to complete rejection for a mortgage. At times, they may just make it hard for you by scrutinizing your application more thoroughly than before. They might require additional paperwork on why the lease was broken, the absence of any outstanding debts to the landlord, and that the tenant has been credit-worthy before and after the incident.
The Waiting Period Depends...
Exactly how long you must wait after breaking a lease to qualify for a mortgage depends on several factors:
- What did you do to breach the lease agreement?
- If there is collection participation
- Your fiscal standing in the community
A man can be clean, with no previous criminal record, and may only have to wait several months to a year before being eligible for a permit. If you had to break the lease due to a significant life or financial upheaval, you can wait for as long as 3-5 years to get a decent mortgage rate and conditions.
How to Enhance Your Probability of Success after a Broken Lease?
If you’ve broken a rental agreement in the past, there are several proactive steps you can take to still qualify for a mortgage sooner rather than later:
- Make sure all previous landlords who took you to court for non-payment of rent are paid off
- Some landlords in the list provided fake information that they were paid their monies Thus, the applicants should ensure that they produce letters from such landlords to confirm the debts were paid.
- Report good tenants because the tenant violated the lease agreement.
- Focus on the amount of credit that you have and your capacity for repaying it.
- It is also advised to take a cosigner on the mortgage
To dispel these fears about being too young, the key is to show the common sense that was gained from the experience, that you are now more financially secure, and that you are willing to take the next step – homeownership. It is also important to make lenders aware of the broken lease.
When you are in a situation where two people are disagreeing, should you explain the situation?
Absolutely. Being a mortgage applicant, one has to be very open about the fact of having a broken lease in the past. It also helps when the issue arises in a background check, one can explain the circumstances. Currently, the physical ailment or any domestic disturbance, loss of job, or other reasonable issues with the property do not attract much attention from the lenders. They might be more lenient especially if you breached a lease in circumstances that are not within your control.
Conclusion
So if you’re an apartment dweller who has violated the terms of their lease, it doesn’t mean that you cannot own a house. But it can take as long as months, or even years based on many factors, which are different for everyone. Admitting the true status of a broken agreement, settling all outstanding debts that are reported in the collection, and creating a fresh and good rental history will go a long way in enhancing the chances of being placed in the mortgage category. If you are still unsure of your standing, it is always wise to seek advice from a housing counselor or mortgage lender. Even in the given circumstances, homeownership may not be out of reach, so one needs to work hard and wait for the right time.
