Purchasing Subject to Finance

Provided that the vendor agrees, the contract may stipulate that the transaction is ‘subject to finance’. This means that the sale will only proceed if the purchaser’s loan application has been approved unconditionally. Purchasing subject to finance provides a safety net as it eliminates the risk of breaching a contract. For example, a ‘subject to finance’ condition will allow you to end the contract without penalty if you are unable to obtain finance before settlement.

It is important to be aware that a pre-approval is not an approval. It generally means that the lender has approved you but not necessarily the property. Finance may be also subject to a property valuation.

Every contract of sale that is subject to finance will have a finance approval date. Two days after the approval date the contract of sale will go unconditional. The purchaser will then be obliged to go ahead with the purchase whether or not finance has been approved.

It’s not uncommon for finance not to be approved by the approval date. In such cases the purchaser has the option to request an extension of time for finance to be approved or to terminate the contract of sale before it goes unconditional. If the contract of sale goes unconditional and the purchaser doesn’t have the funds to settle, the purchaser will be liable for any financial loss sustained by the vendor. This will often exceed the quantum of the deposit and can result in litigation.

At Grant & Co Lawyers we will ensure that appropriate action is taken before the contract of sale goes unconditional.

If you are purchasing subject to finance, call us today to discuss your options.

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