“Subject to finance”: What you need to know

The pre-approved loan for your upcoming property purchase has not been approved. It happens more than you think. And we have had a number of conveyancing clients recently where they had pre-approval and at crunch time it all fell through.

Whether you are a purchaser or seller, it is worth understanding the most common finance terms that you will encounter in a Contract of Sale.

Essentially the bottom line is that if you are buying a property with finance, you must have it approved before sale proceeds. If not, a finance condition needs to be added into the contract of sale. The purchaser is putting themselves at major risk if there is no finance condition and no finance approval.


Subject to Finance

From the point of view of the person selling a property, they want the assurance that the sale has been confirmed. So, if an offer is made with the condition that the purchase is “subject to finance”, to the vendor this is not a certainty on the sale going through. Only when the sale is “unconditional” can the seller breathe a sigh of relief.


Some things to bear in mind

In the majority of cases, people who are selling their house are also purchasers. And if they follow the advice above, they won’t be able to lock in the new purchase until the sale on their house is “unconditional”.

The more accepted ways that the vendor will be notified of their sale becoming unconditional are either in writing by the purchaser, or if the purchaser’s financial condition expires, in which case the contract automatically goes unconditional.

Once unconditional, the sale will go ahead. And if the purchaser has not secured finance, the likely scenario can involve the deposit being lost and they can even be sued for damages.


Common misconceptions

Here are some of the major reasons why the purchaser gets it wrong:

– Buyer considers the “pre-approved” loan to be approved.

– Buyer thinks that the lender’s requirements have been met and then allows the finance condition to expire.


To approve or not to approve

The lender will provide written confirmation when the loan has been approved. In some cases, the approval is “subject to conditions” which means that the loan is not approved.

A “pre-approved” loan is also not approved. Also known as “approved in principle”, it means that the lender has made a number of assumptions on the borrower, and if these assumptions hold true then the loan may be approved.


The general recommendation is that anyone purchasing property on finance should include a condition that states that the purchase is “subject to finance” in the Contract of Sale. Without this condition the purchaser is exposed to huge risk should their finance fall through.

As always, it is recommended that you seek our professional legal advice before entering into any legal contracts. At Titlexchange, our team of lawyers can review a contract of sale before you go to auction, and this service is also included within the House & Apartment conveyancing packages. It’s more than peace of mind. If you would like to know more, please get in touch with us today. Healy

Author Healy

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