What is a subject to finance clause?

Finance , Conveyancing Oct 21, 2020

4 min read

You’ve got your pre-approval in place and found the perfect property. Prior to making an offer you should have the contract (section 32) reviewed by your conveyancer or solicitor. They will alert you to any concerns or clauses you need to be wary of. This includes a subject to finance clause.

It’s also their opportunity 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 then becomes ‘unconditional’.


I have a pre-approval, why 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 home loan. Given you have a pre-approval in place, is it worth ensuring your purchase is subject to finance? In a word, yes.

A pre-approval isn’t an unconditional offer of finance, in fact a pre-approval is the very definition of a conditional offer of finance. There are other factors such as whether the property itself is acceptable and whether the valuation is on par with the price you have offered.

If you are making an offer on a property, Director at Entourage Property Antoinette Sagaria recommends always including a subject to finance clause.


What happens if finance falls through? 

In the event the lender doesn’t approve your loan for whatever reason, 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 prove to be a very costly activity.

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.


How do I ensure an appropriate finance clause is 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 are not there to act in your best interests but that of the vendor.

The length of time you have to organise finance is generally included in this clause and it’s important to bear in mind how long it may take a lender to approve your 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.


I’m going to auction; can I make my bid subject to finance?

No, auctions are unconditional. It’s a good idea to ensure you have a pre-approval in place before you go to auction.


Ensure you protect yourself when you are looking to buy property by surrounding yourself with an entourage! Get in touch, we’d love to help you buy your next home.