Securing finance approval is a critical step for Buyers when entering into a property contract subject to finance. The finance clause is intended to provide the buyer with an opportunity to exit from the contract if they are not able to obtain sufficient funding from their lender to complete the contract. The common timeframe for these clauses is 14 –21 days after the contract date.
This article outlines the key responsibilities and considerations for Buyers, including the necessity of timely applications, diligent follow-up, and clear communication with the Seller to ensure compliance with the contract terms.
What steps must a Buyer take to obtain finance approval if the contract is subject to finance?
If the Contract is subject to finance, a Buyer must take all reasonable steps to obtain finance approval by the finance date. This includes making a finance application promptly after the Contract Date and pursuing the application diligently.
How must a Buyer notify the Seller if they elect to terminate the contract under the finance condition?
If the Buyer elects to terminate theContract under this special condition, they must notify the Seller in writingbefore 5pm on the Subject to Finance date. If the Buyer fails to provide noticeto the Seller, the condition will be deemed to have been satisfied.
What happens if a Buyer fails to take reasonable steps to obtain finance approval?
If a buyer fails to take reasonable steps to obtain finance approval, they may be prevented from relying on the finance condition to terminate the Contract. The seller may request evidence of reasonable steps or a letter of declination from the buyer’s lender.
Can a Buyer withdraw finance approval notice once it is given to the Seller?
Once notice of finance approval is given to the Seller under the Contract, it cannot be withdrawn. However, most financial institutions will reserve the right to withdraw finance approval at any time prior to settlement for any number of reasons. It is important that Buyers consider very carefully any conditions attaching to a finance approval and are ability to satisfy all requirements (now and up to settlement) relevant to the advance of funds before giving any notice about finance under the Contract.
What options does a Buyer have if they do not obtain satisfactory finance approval?
If a Buyer does not obtain satisfactory finance approval from the financier specified in the Contract, they can terminate the Contract or seek an extension of time for finance. Agreement from the Seller is required for any extension and the request may be declined. Alternatively, a Buyer may give notice to the Seller waiving the benefit of the finance condition. This means you are bound to complete the Contract regardless of whether your financier approves finance or the finance terms are satisfactory.
What happens if a Buyer does not notify the Seller about the finance status by the finance date?
If a buyer does not notify the seller inwriting that finance is approved, waived or not approved by the finance date then the condition is deemed to have been satisfied and the Contract continues. This means that the Buyer proceeds with the purchase and must complete settlement by the due date as noted in the Contract.
What happens if the Buyer lacks sufficient funds to pay the balance at settlement?
If the Buyer does not have sufficient funds to pay the balance purchase price (including any adjustments) at settlement the Seller may terminate the Contract or seek specific performance of the Contract, and in both instances, can claim compensation.
What happens if the contract is not subject to finance approval?
If the contract is not subject to finance approval, the Buyer must ensure they have an unconditionally approved loan or cash funds to complete the purchase. It is crucial for the Buyer to urgently inform the relevant parties if they do not have the necessary funds to finalise the settlement.
