Have you ever wondered what would happen if you signed a property contract only to discover your loan application was rejected?
Did you know that without a subject to finance clause, you could lose your deposit if your loan falls through?
Buying a property in Australia comes with big decisions, and this clause can save you from trouble.
It’s a key part of many property deals, especially in places like Melbourne property markets.
Without proper protection, you could lose your deposit and face legal action.
This blog explains what it is, its pros and cons, and tips to get it right.
What Does 'Subject To Finance' Mean?
When making an offer on a property with a ‘subject to finance’ clause, you’re indicating that the sale can only proceed if you successfully obtain financing from a lender.
This clause, included in the contract of sale, serves as a safety net for buyers of property.
If you sign a contract without this crucial clause and fail to secure a loan, you risk losing your deposit and potentially facing legal action from the seller for breach of contract.
This scenario highlights why working with experienced professionals like property conveyancing in Melbourne experts is essential.
The Difference Between Pre-Approval And Final Approval
Many first-time buyers assume that pre-approval guarantees their financing. However, this is a dangerous misconception.
Even with pre-approval, including a subject to finance clause remains necessary.
Pre-approval merely indicates that a lender is likely to approve your loan based on preliminary assessments. It’s not a guarantee.
Final or unconditional approval only comes after meeting specific conditions and the lender’s thorough evaluation of the property and your financial situation.
Why Subject To Finance Matters – Even With Pre-Approval
Think pre-approval means you’re safe? Not quite. Pre-approval just shows what you might borrow – it’s not final. Lenders give full approval later, after checking everything.
So, even with pre-approval, a finance clause is a must. It gives you time to lock in the loan properly. Skip it, and you’re gambling with your money.
What Should Be Included in Your Finance Clause?
A well-drafted finance clause typically includes:
| Element | Description |
|---|---|
|
Lender Name |
Your chosen financial institution (or “buyers’ choice”) |
| Loan Amount | Either a specific figure or “sufficient to complete the contract” |
| Approval Date | The deadline for securing finance approval |
| Loan Term | The duration of the loan (sometimes required) |
| Interest Rate | The expected interest rate (sometimes required) |
Your professional conveyancer in Melbourne will help ensure these elements are correctly included in your contract.
Finance Clause Timeframes
The timeframe for a finance clause typically falls into these categories:
- 7-day finance clause (expedited process)
- 14-day finance clause (standard)
- 21-day finance clause (common for trust purchases)
Remember that these refer to calendar days, not business days unless explicitly stated.
If you exchange contracts on a Friday afternoon, your clock starts ticking immediately, even though banks won’t process your application until Monday.
Are There Any Benefits For Buyers?
Why use it? A subject to finance clause gives you breathing room. You can shop around for loans and compare rates without pressure.
If something goes wrong – like losing your job – you’re not forced to buy. Plus, only you can waive it, so no one else controls the deal. Buyers of property get flexibility and protection with this.
Negotiate the deadline too. Need more time? Talk to the seller. It keeps things fair for both sides.
When Do Finance Clauses Go Wrong?
Finance clauses can fail to protect you in several scenarios:
- Failing to submit a loan application promptly
- Not providing adequate notice to the vendor before the deadline
- Receiving decline letters from mortgage brokers rather than from the nominated lender
- Not notifying the vendor of loan approval before the deadline
Working with a professional conveyancer in Melbourne helps you avoid these pitfalls.
How Does It Work With Other Clauses?
The finance clause often pairs with others, like “subject to inspection” or “subject to appraisal”. Inspection lets you check the property for problems. Appraisal makes sure the lender agrees with the price.
If either fails, you can walk away – just like with finance. Together, they give you more ways out if the deal sours.
Sellers might add their own rules, like tight deadlines. Read every word before signing.
Tips To Get It Right
Keep it simple – use clear words so everyone understands. Get a conveyancer in Melbourne or a lawyer to check it.
Tell the seller what you need to do, like applying for pre-approval, so they trust you’re serious. Make the terms fair – don’t set a deadline that’s impossible for you but blocks them from selling.
Add a valuation condition too. It stops you from borrowing more than the property’s worth, saving you from overpaying. Property conveyancing in Melbourne experts know this keeps deals safe.
When Should You Use It?
Always include it if you need a loan. Even if you’re confident, things can change – banks tighten rules or rates jump. It’s a must for Melbourne property buyers with finance.
Check the contract before signing – your agent or conveyancer should have it there. It’s your shield against losing money.
Need Help With Your Subject To Finance Clause?
Confused about the subject to finance clauses when buying a property? Eagle Peak Conveyancing has your back! Our expert conveyancers in Melbourne team offers simple, affordable property conveyancing services to make your purchase safe and easy.
With our trusted reputation and fixed-price packages, we’ll guide you through every step – no stress, no surprises.
