What the clause actually does
A 'subject to finance' clause makes the contract conditional on you getting loan approval by a set date. If the approval doesn't arrive in time, you can end the contract and get your deposit back. Without it, you're bound to complete the purchase whether or not a lender will fund it.
That's the buyer's side. Sellers benefit too, and it's worth saying so, because sellers sometimes read the clause as a weakness in an offer. A contract that allows for finance opens the sale to every buyer who needs a loan, which in Queensland is most of them, and it puts the expectations around money in writing from day one.
If any part of the purchase price is being borrowed, we recommend the clause goes in.
The three details that make it work
The finance condition in a Queensland contract needs three things filled in: the amount of finance you need, the name of the lender you're applying to, and the finance date. Leave one of them blank and the condition may not do its job.
Say Priya is buying a townhouse in Goodna for $640,000. She's borrowing $560,000 from her bank, and the contract gives her 14 days to get approval. Those three facts go on the front page of the contract. If her approval hasn't come through by day 14, she can ask the seller for more time, which they don't have to give, or she can end the contract and recover her deposit. Once the approval does arrive and she tells her solicitor she's satisfied, the finance condition is met and the contract moves on.
Conditional approval is not the finish line
Lenders approve in two stages, and the words matter.
Conditional approval is the first stage. The lender has tentatively said yes, but there are still boxes to tick: more documents, waiting for a new lot to be registered, or a signed contract for the sale of your current home.
Unconditional approval means every one of the lender's conditions has been met. The loan is fully approved, subject only to the purchase going through.
Only the second one satisfies your finance clause. Pre-approval, which is what most people have when they start looking, is not the same thing as either of them.
The step buyers miss
Bank approval on its own does not satisfy the finance condition on your contract.
Read that twice, because it catches people every week. Once you have unconditional approval, you need to tell your solicitor, in writing, that you're satisfied with your finance. Your solicitor then notifies the seller's side by the due date. Until that notice goes, the condition is still open.
Back to Priya. Her bank emails unconditional approval on day 12. If she files the email away and doesn't tell us, nothing happens on our end, and on day 14 the contract is still conditional while everyone waits. A one-line email to her solicitor on day 12 fixes that.
Unconditional finance and an unconditional contract are different things
Your loan can be unconditionally approved while the contract is still conditional on other things, like a building and pest inspection. The contract only becomes unconditional once every condition has been dealt with by its own due date, and each one has to be satisfied separately. Finance is one condition. It's rarely the only one.
Questions people ask
What happens if I can't get finance by the due date? You can ask the seller for an extension, which they can agree to or refuse. If no extension is agreed, you can end the contract under the finance clause and recover your deposit. What you shouldn't do is let the date pass in silence.
Does pre-approval satisfy the finance clause? No. Pre-approval is an indication that a lender is likely to lend, not a formal approval. The clause is satisfied by unconditional approval, followed by your written confirmation to your solicitor.
I'm paying cash. Do I still need a finance clause? No. The clause exists to protect a buyer who needs to borrow. If none of the price is coming from a lender, there's nothing for it to protect.
Where this comes from
- The standard REIQ contract for houses and residential land in Queensland, which sets out the finance condition and how it's satisfied.
How Stanford Legal can help
Our conveyancing team reads the finance condition before you sign it, checks the three details are right, and chases you on the due date so the notice goes when it should. The first conversation is free. Call 0483 980 001 or book a time online.
This article is general information for Queensland readers, current at the time of writing. It isn't legal advice for your situation. Liability limited by a scheme approved under Professional Standards Legislation.
