Waiving the Finance Clause on your purchase contract may give you an advantage in securing the property over other offers but be aware of the pitfalls, even if you have a loan pre-approved.
Having a “subject to finance” clause can be an important way to protect you, the purchaser. It protects your deposit and gives you the option to break the contract should your loan not be approved.
Having no Finance Clause means you cannot break the contract even if your loan is declined by the bank. There would be no refund of deposit and also the potential to be sued by the vendor if the purchase doesn’t proceed. We strongly recommend obtaining advice from your Solicitor or Conveyancer on this matter.
But I have a pre-approval you say. Do I still need a Finance Clause?
Yes, you sure do. Even though you might have a pre-approval, the bank may still carry out some final checks and do a valuation on the property being purchased.
Valuation of the property may fall short of the purchase price or not meet the lender’s policy due to its location or unique nature.
Any of these scenarios could lead the bank to decline your loan or reduce the amount they will lend you, even with a current pre-approval in place.
Here are some tips for including a finance clause in your contract
- If a lender is not specified in the finance clause, your application must be with a lender that is acceptable as per the conditions of the contract, so it is best to put “Lender of Choice”.
- When determining a finance timeframe ask for working days rather than just days. For example, if you sign a contract with a 14-day finance clause the day before the Easter weekend you lose two working days in public holidays and four days of weekend days so in fact there are only 8 working days left in that 14. However, if you specify working days then you will get 14 working days.
- See a solicitor or conveyancer to get the best legal advice and the correct terminology for your finance clause.
- Each state has slight differences in what finance clause means, so be wary of this.
A subject to finance clause states that you as the purchaser will take all reasonable steps to acquire finance. The purchaser needs to comply with all of the written requirements of the finance conditions. If the loan application is declined by the lender prior to the finance clause expiring, you have the ability to withdraw from the contract. A formal decline letter from the lender will be required as proof.
Always seek legal advice from a solicitor who can go over your contract to ensure it provides the protection you need.