June 14, 2023
What Is A Subject To Finance Clause?
If a sale contract is ‘subject to finance’ it means is conditional on the buyer obtaining finance approval by the finance date in the contract. This means that if the Purchaser is unable to secure satisfactory finance for the property, they can cancel the contract and retain their deposit.
When Should A Contract Be Subject to Finance?
Contracts should be made subject to finance where the Purchaser requires a loan for any part of the purchase price.
Buyers should consult their mortgage broker, or liaise directly with their bank or lending institution to obtain pre approval for their home loan prior to making an offer on a house.
Once under contract, the Purchaser will need to apply for formal approval. It is not recommended that Buyers satisfy the finance condition until they have obtained unconditional approval.
How Do I Make My Contract Subject To Finance?
Standard finance conditions vary depending on the location of the property you are buying:
Queensland
The finance clause in the standard contract of sale for residential property in Queensland has three parts; finance amount, financier, and finance date. All three of these sections must be completed for the contract to be subject to finance.
Victoria
In Victoria, the appropriate box must be ticked and details filled in; the name of the lender, the amount of the loan sought, and the date approval needs to be obtained by. This will activate general condition 20, which sets out the requirements for the Purchaser to be able to cancel under this condition.
Cancelling Under the Finance Clause
Queensland
In Queensland, written notice must be given to the Vendor prior to 5pm on the finance date stated in the sale contract. If the Purchaser is unable to obtain finance by this deadline, they can instruct their conveyancing solicitor to terminate the contract. If the Buyer does not advise the Vendor as to whether they have satisfactory finance approval by this deadline, the contract will continue, and both the Buyer and the Vendor will have the right to cancel the contract.
The Purchaser must take all reasonable steps to obtain finance approval by the finance date. This includes making a loan application shortly after entering into the contract.
Victoria
In Victoria, the standard contract of sale provides that the Purchaser may terminate the contract and be refunded their deposit if they immediately applied for a loan, did everything reasonably necessary to obtain approval, and they serve written notice on the Vendor cancelling the contract, including evidence of the rejection of the finance application, by the finance date. The Purchaser must also not be in default of any other condition of the contract.
The Purchaser has a grace period of two days to notify the Vendor of the outcome of their loan application. If a purchaser doesn’t advise the Vendor of the outcome of their loan application within the stipulated timeframe, and no extension is agreed, the contract continues as an unconditional contract in this regard.
Can I Get A Finance Extension If I Need More Time?
If the Purchaser is not able to arrange finance within the finance period, and they do not wish to terminate the contract, they can request a finance extension from the Seller, though the Seller may decline the request.
Can Purchasers Keep Their Deposit If The Cancel Under a Finance Clause?
If a contract is validly terminated by the Purchaser under a finance clause, the Purchaser will be entitled to a refund of the full deposit.
Why Are Finance Clauses Important?
A subject to finance clause allows the Purchaser time to have finance approved prior to their purchase contract going unconditional, and allows them to cancel the contract if they are unable to obtain finance.
What Else Should I Know About Finance Clauses?
- Finance conditions are inserted for the Purchaser’s benefit, and may be waived by the Purchaser at any time.
- It is recommended that you leave a window of at least 14 days between the finance date and the settlement date to allow your lender enough time to prepare for settlement.
- If you are unsure about any aspect of your finance clause, it is important to seek legal, and if relevant, financial advice to ensure you are making informed decisions throughout the process.
I’ve Satisfied The Finance Clause, Is My Contract Unconditional?
If the Purchaser has satisfied the finance condition, it means the contract is unconditional in that regard. Whether it is unconditional depends on whether there are other conditions remaining to be satisfied (contracts may be subject to the payment of a deposit, a cooling off period, a building and/or pest condition and many other possibilities).
More Questions?
If you have more questions about finance clauses or any other aspect of conveyancing, our experienced conveyancing solicitors are waiting to take your call! Contact us via our contact form or head over to our quote form for an obligation-free quote.
The above is not legal advice and is general information only
