What Is A Subject To Finance Clause?

A subject to finance clause is a critical component in your home-buying contract. This clause safeguards you, allowing you to withdraw from the sale if your home loan application isn’t approved.

This clause protects you from losing your deposit or facing legal action from the seller if your loan is declined.

What Does Subject To Finance Mean?

When you make an offer on a property with a subject to finance clause, it indicates that the sale can only proceed if you’ve successfully obtained financing from a lender. The clause is included in the contract of sale and must be clearly defined to protect the home buyer’s interests.

If the buyer signs a contract of sale without a subject to finance clause and fails to obtain financing, they risk losing their deposit and may face legal action from the seller for breach of contract.

What If I Am Pre-Approved? Do I Still Need A Subject To Finance Clause?

Yes, you must still stipulate a subject to finance clause even after pre-approval or conditional approval.

A pre-approval is not a guarantee of financing. The lender will only give you unconditional or final approval after certain conditions are met. A pre-approval helps you get an indication of how much you can afford from a preliminary assessment.

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What Should Be Included In The Subject To Finance Clause?

Here is a standard finance clause to give you an idea of what should be included.

Your conveyancer should have something similar so you can simply insert:

• The name of your lender (in some cases, you may be able to just write down “buyers’ choice”)
• The amount of the loan or “sufficient to complete the contract”.
• The approval date.
• The loan term and interest rate (this isn’t required by all agents).

In all finance clauses, there is an obligation to take all reasonable steps to obtain the finance (including providing relevant information, signing documents, making an applications etc.).

The clause will usually include a warranty that you have already done so such as a declaration of “application made but decision pending”.

Typically, you can negotiate a:

• 7-day finance clause.
• 14-day finance clause.
• 21-day finance clause, which is common when purchasing a property in a trust because trust loans take longer for the banks to approve.

It’s important to note that “days” refers to all calendar days, not just business days, unless explicitly stated.

For example, a 21-day finance clause is for 21 days, not for a month and one day.

If you exchange contracts on Friday afternoon and then ask your bank for formal approval, your request won’t likely be checked until Monday so you will have lost two days.

You can also be in breach of the finance clause if you apply with a bank or lender that’s different to the one that you specified in the Contract of Sale.

Check out more golden tips for completing a finance clause and speak with your conveyancer to ensure that you’re able to meet your obligations.

Fast Track to Approval: Your Home Loan Checklist

A well-curated checklist to improve your chances of a home loan approval.

When Could Subject To Finance Clauses Go Wrong?

• Failure to submit an application and to provide adequate notice to the vendor before the deadline is considered a breach of contract.
• A letter from your mortgage broker advising that finance has been declined is generally not acceptable. It must be from the nominated lender.
• Failure to notify the vendor that you have been approved for your home loan before the deadline is another potential breach.

5 Things To Consider Before Signing The Contract

Check Zoning and Future Developments

Investigate zoning regulations and any planned developments in the area. These could impact property value, privacy, or your long-term living experience.

Scrutinise the Title Deed

Carefully examine the title deed for easements, encumbrances, or restrictions that might limit how you can use the property.

Understand the Contract of Sale

Don’t skip the fine print. Have a qualified conveyancer review the Contract of Sale to ensure there are no surprises.

Book a Pest and Building Inspection

Arrange for professional inspections to detect structural issues or pest infestations that could lead to costly repairs.

Plan for Hidden and Ongoing Costs

Beyond the purchase price, factor in additional expenses like stamp duty, legal fees, and the ongoing costs of maintaining the property.