Understanding finance clauses on a contract of sale is crucial for anyone buying or selling property.
These clauses can impact your ability to secure financing and influence the success of the transaction.
This guide will help you navigate these clauses, explain their significance, and ensure you’re fully informed about your financial obligations and rights during the sale process.
Being well-versed in these aspects can lead to a smoother and more confident property transaction.
Do I need a finance clause when buying or selling property in Queensland?
Yes, including a finance clause in your contract of sale is highly recommended when buying or selling property in Queensland. A finance clause, often referred to as a “subject to finance” clause, provides a safeguard for buyers who need to secure a loan to complete the purchase. This clause stipulates that the contract is conditional upon the buyer obtaining finance approval by a specified date.
For buyers, the finance clause protects you from being legally obligated to complete the purchase if you are unable to secure financing. This means you can cancel or terminate the contract and recover any deposits paid if your loan application is not approved by the set due date.
For sellers, including a finance clause can attract more potential buyers who may require a loan to buy the property. It ensures that the sale process is transparent and sets clear expectations regarding the buyer’s financial obligations.
What does “subject to finance” mean on a contract?
If you are in the process of buying a home and are under contract, one of the conditions might be “subject to finance”.
This means that if the Buyer does not obtain financial approval by a set due date, they can cancel or terminate the contract and recover any deposits paid.
A contract will usually be subject to finance if any portion of funds are needed to cover the purchase price of a property.
These required funds indicate a need for a loan.
In Queensland, to make your contract subject to finance, you will be required to submit a finance amount, financier and finance date that must be sufficiently met to execute a contract.
Once a Buyer obtains formal approval from a lender or bank, they are able to satisfy the Finance Condition and the contract becomes unconditional.
What is the difference between conditionally approved finance and unconditionally approved finance from your lender? (not to be confused with an unconditional contract of sale)
On a typical contract of sale where the buyer is financing, there are two stages of approval:
- conditionally approved
- unconditionally approved finance
Being conditionally approved is the first stage, where the lender has tentatively approved the loan.
However, certain conditions need to be met before the final approval is granted, such as providing additional documentation or fulfilling specific requirements (like waiting for a property to register, or signing a Contract to sell your current residence).
When these obligations are met, the finance is unconditionally approved.
Unconditionally approved finance means that all of the bank’s conditions have been met, and the loan is fully approved by the lender, subject only to the completion of the contract sale.
You will then need to make a decision if you are happy with the loan you have been offered and whether you wish to proceed with the Contract of Sale.
If you are happy to proceed, you must notify your solicitor, in writing, that you are satisfied with your Financing.
It is not enough to simply be approved by the bank, your property Contract has its own conditions with due dates that need to be manually satisfied.
Need assistance with a contract of sale?
If you need assistance with understanding or finalising a contract of sale, contact our expert conveyancing team at Stanford Legal.
Book a free consultation today to ensure your property transaction proceeds smoothly and confidently.
