The subject to finance clause
You’ve got your home loan pre-approval in place and found the perfect property. Prior to making an offer you should have the contract of sale reviewed by your conveyancer or solicitor. They will alert you to any concerns or clauses you need to be wary of. This includes the subject to finance clause.
Your legal professional will also be able to advise what may need to be added to the contract. Including whether to make your offer subject to finance or other conditions. A subject to finance clause states that the offer you have made on the property is conditional on you obtaining finance by a particular date. Once the finance has been approved the contract will then become unconditional.
If I have a home loan pre-approval, do I need a subject to finance clause?
Unless you are paying cash for a property or have already had your finance approved to draw your equity from another property to cover the purchase, you are probably going to need a new home loan. Given you have a home loan pre-approval in place, it is worth ensuring your purchase is subject to finance.
A home loan pre-approval isn’t an unconditional offer of finance, in fact a home loan pre-approval is the very definition of a conditional offer of finance. There are other factors such as whether the property itself is acceptable to the lender and whether the property valuation is in line with the price you have offered to pay.
What if my home loan application is declined?
In the event the lender doesn’t approve your home loan application, without a subject to finance clause you would lose your deposit and potentially more. A vendor may even decide to take you to court for damages and breach of contract – which could be very costly.
If you have an appropriate subject to finance clause in place and you haven’t exceeded any agreed upon deadlines, then you are able to rescind your offer and walk away with your deposit intact.
You would need to provide a formal decline letter from the lender to show that your attempt to obtain finance was genuine, in order to withdraw from the contract.
You need an appropriate finance clause in place
Speak with your conveyancer or solicitor who can review the contract and ensure the finance clause in the contract is appropriate to your requirements. Never rely on the real estate agent to ensure the clause is in there, they act for the vendor and will not act in your interests.
The length of time you have to organise finance is generally included in the finance clause, it’s important to keep in mind how long it may take a lender to approve your home loan application. It’s standard practice to put a 7, 14 or 21 day finance period, with the option to extend this if there are delays.
If I attend an auction, can I make my bid subject to finance?
Auctions are unconditional, it is not possible to make your bid subject to finance.
You must ensure that you have a fully assessed pre-approval in place before you attend an auction.
Ensure you protect yourself when you are looking to buy property by surrounding yourself with a team of qualified professionals.
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