Buying Property Subject to Finance in Victoria: What Purchasers Need to Know
Buying property is a significant financial commitment. If you need a loan to complete the purchase it is important that the Contract of Sale contains an appropriate finance condition before you sign.
A finance condition can provide valuable protection but it does not give a purchaser an unrestricted right to withdraw from the purchase. The condition contains strict requirements and deadlines that must be followed.
What does “subject to finance” mean?
When a Contract of Sale is subject to finance, the purchase is conditional on the nominated loan being approved by the finance approval date stated in the contract.
The standard Victorian Contract of Sale generally asks for:
the lender
the amount of the loan required
the finance approval date.
These details should accurately reflect the finance you need. They are not simply estimates and should be considered carefully before the contract is signed.
The finance condition only applies if it is properly included in the contract. It should never be assumed that a purchase is subject to finance merely because the purchaser intends to obtain a loan.
Is pre-approval enough?
Loan pre-approval can help you understand your likely borrowing capacity but it is not the same as final approval for a particular property.
Before issuing formal approval a lender may still need to:
value the property
review the signed Contract of Sale
assess the property as suitable security
verify your income, expenses and financial circumstances
obtain further documents or information
confirm that its lending requirements have been satisfied.
A purchaser who has pre-approval may therefore still need the protection of a finance condition.
If you are relying on borrowed funds to complete the purchase discuss the proposed finance condition with your conveyancer and finance broker before signing the contract.
What are the purchaser’s obligations?
Under the finance condition in the standard Victorian Contract of Sale the purchaser must generally:
apply for the required loan immediately
take all reasonable steps to obtain approval
provide the lender or broker with requested information promptly
comply with the finance condition’s notice requirements
ensure they are not in default under another condition of the contract.
The purchaser should apply for finance using the details specified in the contract and keep evidence of the application and communications with the lender or broker.
A finance condition is not intended to allow a purchaser to change their mind about the property. The purchaser must make a genuine and timely effort to obtain the required approval.
Why is the finance approval date important?
The finance approval date is the deadline by which the loan is expected to be approved.
You should record this date carefully and follow up with your lender or broker well before it arrives. Do not assume your bank, broker or real estate agent will automatically contact your conveyancer about the progress of your application.
Please let me know as soon as:
your finance has been formally approved
the lender requires further time
the valuation has been delayed
the lender has imposed conditions that remain outstanding
the loan application has been declined
you have changed lender or altered the amount being borrowed.
Waiting until the finance approval date has passed may limit the options available to you.
What if finance is not approved by the deadline?
If your finance has not been approved the contract does not automatically end.
Depending on the wording of the contract you may need to:
request an extension of the finance approval date, or
give formal written notice ending the contract.
An extension is not automatic. It must be requested and agreed to by the vendor preferably before the existing finance date expires.
Under the standard finance condition a purchaser seeking to end the contract must generally provide written notice together with written evidence that the loan has been rejected or has not been approved. The notice must be given within the timeframe specified in the contract.
The standard condition may allow notice within two clear business days after the finance approval date. However, a special condition may change or remove that additional period. You should therefore contact me before the approval date rather than relying on extra time being available.
If the contract is validly ended under the finance condition money paid by the purchaser must generally be refunded.
What if the lender has issued conditional approval?
A lender may say that a loan is approved subject to outstanding conditions. These might include a satisfactory valuation, mortgage insurance approval, evidence of savings, updated financial documents or the sale of another property.
Conditional approval may not necessarily mean that the finance condition in the Contract of Sale has been satisfied.
Do not tell the agent that finance is approved merely because your broker or lender has said the application “looks fine” or is “on track”. Ask for written confirmation and check whether any conditions remain outstanding.
If you are unsure about the status of your approval send the lender’s or broker’s correspondence to me before confirming that the contract is unconditional.
Can you change lenders or loan amounts?
The lender, loan amount and approval date recorded in the contract are important contractual details.
If you decide to change lender, alter the amount being borrowed or restructure the application you should obtain advice before doing so. A change may affect your ability to rely on the finance condition if the new application is unsuccessful.
The safest approach is to make sure the finance details are correct before signing and to notify me immediately if anything changes.
What happens if you miss the deadline?
If the purchaser does not comply with the finance condition or give the required notice on time they may lose the right to end the contract under that condition.
The contract may then remain binding even though the purchaser has not obtained the loan required to settle.
A purchaser who cannot complete settlement may risk:
losing the deposit
being charged penalty interest and other costs
receiving a default notice
having the contract ended by the vendor
being pursued for losses suffered by the vendor.
Finance deadlines must therefore be treated as firm contractual dates not informal targets.
Can an auction purchase be subject to finance?
A property purchased at auction is generally sold on an unconditional basis.
You ordinarily cannot add a finance condition after becoming the successful bidder. If a finance condition is required it must be negotiated with and accepted by the vendor before the auction.
Pre-approval is particularly important before bidding but it still does not guarantee that a lender will approve the particular property or provide the funds required for settlement.
You should have your finance, Contract of Sale and Section 32 vendor statement reviewed before bidding.
Can the standard finance condition be changed?
Yes. A Contract of Sale may contain special conditions that amend, replace or remove parts of the standard finance condition.
For example, a special condition may:
require notice by an earlier time
remove an additional notice period
require particular evidence from the lender
impose further requirements before the purchaser can end the contract
limit the circumstances in which an extension can be requested.
This is one reason why the complete contract should be reviewed before it is signed. It is not enough to see that the finance section has been completed without also checking the general and special conditions.
Common finance-condition mistakes
Common problems include:
assuming pre-approval is final approval
signing without a finance condition
using an unrealistic finance approval date
entering an incorrect lender or loan amount
delaying the loan application
failing to provide requested documents promptly
relying on verbal advice from a lender or broker
assuming someone else will request an extension
changing lender or loan amount without obtaining advice
waiting until after the deadline to contact the conveyancer
overlooking a special condition that changes the standard protection.
These issues can have serious consequences so early communication is essential.
How I can assist
Before you sign a Contract of Sale I can:
review the proposed finance condition
check the lender, loan amount and approval date
identify any special conditions that alter your rights
request changes to the contract where appropriate
record and monitor the finance deadline
communicate with the vendor’s representative
request an extension if additional time is required
advise you if the loan is not approved.
If you are considering purchasing property in Victoria and will require finance please contact me before signing so the Contract of Sale can be properly reviewed.
This information is general in nature and does not constitute legal or financial advice. Finance conditions and notice requirements may differ between contracts. Advice should be obtained about your individual circumstances before signing a Contract of Sale or taking any action under a finance condition.