Conditions of sale ? What is "subject to finance"?

September 12, 2013
Steve Pratt

It’s time to buy that dream home. You’ve done your homework, you know how much you can borrow and you even have a pre-approval from the bank or maybe you have a long lost aunt that is going to help out with a deposit.

You have now found that dream home and you are ready to sign the contract and you ask yourself, “What conditions should I include?” 

"Subject to a successful building inspection” is always an important condition for buyers peace of mind.

Equally important is the “subject to finance”, even if you do have a pre-approval in place.

Why? Whilst it is a great idea to get a pre-approval, this usually means the lender approves you for a loan, but it does not mean the lender approves of the property. Often these pre-approvals are a conditional approval subject to a valuation of the property. This condition will allow you to withdraw from the contract without any penalty or loss of your deposit if you are not approved for the loan you need to make the purchase.

Often there is a perceived pressure to sign the contract without these conditions. It is important that before making an offer, talk to your broker about the conditions of the finance; this includes the rate and time involved in getting the finance approved. You could even suggest that the agent call your broker to get some assurance that the finance process is underway.

It is a great idea to seek loan pre-approval before you make an offer or bid on a property, so you can be reasonably comfortable that you can borrow the required funds, just be aware that pre-approved does not mean that your finance is fully approved.  

Points to remember about a pre-approval.

  • Loan pre-approval provides a conditional approval of a loan amount and is usually based on each borrower’s individual circumstances, needs and ability to repay the loan.
  • Keep in mind that the loan pre-approval is usually a limited time offer, for a period of three to six months and a mortgage broker can help you with setting one up.
  • The lender can still decline the loan if they don’t like the property.
  • It is important to keep in mind that if your circumstances change from the time of pre-approval until you find a property, pre-approval may be withdrawn by the lender. So keep your lender and/or mortgage broker in the loop if your financial situation changes even slightly.
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