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What is a Subject to Finance Clause?

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A subject to finance clause is a clause that is typically included in a contract for the sale of the property. It gives the buyer a period of time, usually up to 14 days, to obtain finance approval for the purchase price of the property. If the buyer is unable to obtain finance approval within that time frame, they may be able to back out of the contract and have their deposit returned.

For many buyers, a subject to finance clause offers peace of mind in knowing that they will not be stuck with a property purchase if they are unable to obtain finance approval. It also gives them time to shop around for the best home loan deal. However, it is important to note that a subject to finance clause is not a guarantee that the buyer will be able to get a loan.

It is always best to speak to a mortgage broker or lender before signing a contract subject to finance to ensure that you will be eligible for a loan and the type of loan you may be able to obtain.

Better yet, get in touch with Complete Conveyancing Solutions. Our team can give you advice on every clause included in your property matter, regardless of whether you are a buyer or selling. We can also refer you onto our business partners who can assist you with your application for finance. We approach every issue with compassion and understanding, and aim to work directly with you to find the best results for you.

In most states of Australia, you will need to request that a subject to finance clause be included in the contract of sale. This article will be covering the process in Victoria.

Understanding home loans, contracts, and clauses

If you’re looking to buy a property from a real estate agent or private seller, you’ll likely be needing the help of a credit provider. Loan approval from a home loan provider is not always set in stone. It relies on a thorough examination of your financial situation to determine whether you can service the loan long-term.

A finance clause in a sales contract is pretty commonplace, but it’s also essential for your protection as a buyer. Without it, you can stand to be stuck with the contractual purchase of a home, putting you at risk of being in great debt with no way of financing it. This is the risk of an unconditional contract.

Subject to finance clauses means that the sale contract can proceed with conditional approval, the condition being finance approval or home loan approval from a bank.

Terms of the subject to finance clauses

The standard practice for these clauses is to put time limits as a written notice in the contract. These can stipulate that the contract usually contains a 7-day, 14-day, or 21-day subject to finance period from the date of signing home purchase contracts.

The buyer can request further expansions if a loan application is unsuccessful. A seller can also demand that the contract be terminated if it is extended. Finally, a buyer may choose to proceed with unconditional approval if circumstances change.

For a contract to be terminated due to an unsuccessful loan application from a financial institution, the buyer must communicate that they made a genuine attempt to obtain finance. This usually means producing a letter showing that formal approval was not granted.

What is a subject to finance clause 2

Using the subject to finance clause

Subject to finance clauses may only apply to private sales involving private sales or real estate agents. Public auctions will not feature a subject to finance clause because they are likely already financed via pre-approval. In short, don’t participate in an auction if you don’t have a lender approving your finance!

The risks of using a subject to finance clause

Don’t assume that just because you have a finance clause, that you can automatically void a sale and get your deposit back. The contract may become unconditional if you have not sought a loan, or alerted the seller about your situation. If the finance condition time frame lapses, the buyer may have no option but to proceed with the purchase. This may result in a loss of deposit, or a lawsuit under breach of contract.

Here’s how you can protect yourself:

  • Look to secure finance as soon as you possibly can
  • Estimate your borrowing power by reviewing your financial situation
  • Understand your approval date and what it will mean for your contract
  • Be sure your relevant credit provider has an Australian credit licence
  • Work with a qualified conveyancer

Complete Conveyancing Solutions understands the pitfalls of property contracts. We can help you navigate your rights and responsibilities, ensuring that you don’t face undue risk. We understand that securing finance can be stressful and difficult. We want to make it easier on you, so that you can get back to enjoying your journey to home ownership.

Contact us today for a complimentary contract review. If you are happy with our work, we can proceed together.

Maria Tomlinson holds an unrestricted conveyancing licence together with Professional Indemnity Insurance against civil liability. Maria Tomlinson commenced her career in Conveyancing in 2001. She furthered her studying by completing her Diploma in Conveyancing in 2017 which has led her to hold an unrestricted Conveyancing License and successfully open her conveyancing firm, Complete Conveyancing Solutions.

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