Buying a property is a major financial commitment, and one of the most important considerations for many buyers is whether their finance will be approved.
You may have heard the term “subject to finance” when discussing an offer or Contract of Sale.
A finance condition can provide important protection for a buyer, but it is essential to understand exactly what the condition means and what you need to do before the relevant deadline.
This article explains what “subject to finance” means in Victoria, how a finance condition works and what buyers should consider before signing a Contract of Sale.
What Does “Subject to Finance” Mean?
A property purchase that is “subject to finance” generally means the buyer’s obligation to proceed with the purchase is conditional on obtaining finance in accordance with the terms of the contract.
The exact wording of the finance condition is important.
It may specify matters such as:
- The amount of finance required
- The lender
- The finance approval date
- The type of loan
- What happens if finance is not approved
A buyer should never assume that simply having a finance condition means they can cancel the contract whenever they choose.
The actual contract wording determines the parties’ rights and obligations.
Why Is a Finance Condition Important?
A finance condition can be particularly important for buyers who have not yet received formal approval for the specific property they are purchasing.
For example, you may have spoken with a lender or mortgage broker and received an indication that you can borrow a certain amount.
However, this does not necessarily mean that your loan for the particular property has been formally approved.
The lender may still need to assess:
- The property
- The valuation
- Your financial circumstances
- The loan structure
- Other lending requirements
Is Pre-Approval the Same as Final Loan Approval?
No.
A loan pre-approval or conditional approval is not necessarily the same as formal approval for the particular property.
A lender may provide an indication of how much you may be able to borrow, but the property itself may still need to be assessed.
For this reason, buyers should understand the difference between:
Pre-approval → Property purchase → Property valuation → Formal approval
Your lender or mortgage broker can explain your specific finance position.
Can I Make an Offer Subject to Finance?
You may be able to negotiate a finance condition as part of the Contract of Sale.
Whether the seller accepts the condition depends on the circumstances and negotiations.
Some sellers may prefer an unconditional contract, while others may accept a finance condition.
If a finance condition is included, make sure you understand exactly what it requires and when it expires.
What Information Is Usually Included in a Finance Condition?
The wording can vary between contracts.
A finance condition may specify:
- The finance amount
- The date by which approval must be obtained
- Requirements relating to the lender
- Notice requirements
- What happens if finance is not obtained
Because the wording is important, buyers should have the contract reviewed before signing if they are relying on finance.
What Happens If My Finance Is Approved?
If your finance is approved in accordance with the contract, you generally continue with the purchase.
Your lender will then work towards settlement and arrange the required loan documentation and funds.
You should continue providing any documents requested by your lender and conveyancer.
What Happens If My Finance Is Not Approved?
If finance is not approved, the outcome depends on the terms of your contract.
If the contract contains an appropriate finance condition and the required requirements are satisfied, the buyer may have rights under that condition.
However, you should not simply assume that you can walk away from the transaction.
You should contact your conveyancer immediately if your finance is delayed or declined.
What If My Finance Is Delayed?
Finance approval can sometimes take longer than expected.
For example, delays may occur because:
- The lender needs additional documents
- The property valuation is delayed
- Your financial circumstances require further assessment
- The lender requests additional information
- The loan structure needs to be changed
If your finance deadline is approaching, contact your lender and conveyancer as soon as possible.
Do not wait until the last day.
Can the Finance Date Be Extended?
An extension may be possible if the parties agree to it.
However, an extension is not automatic.
The seller does not necessarily have to agree to extend the finance period.
If you need more time, speak with your conveyancer before the finance deadline expires.
What Happens If I Do Not Tell the Seller That Finance Is Delayed?
You should communicate promptly with your conveyancer if your finance approval is delayed.
Your conveyancer can explain your contractual position and advise you about the appropriate next steps.
Ignoring the deadline can create unnecessary risk.
Does a Finance Condition Protect Me From a Falling Property Value?
Not necessarily.
A lender may conduct a valuation of the property before approving the loan.
If the valuation is lower than the purchase price, the lender may reduce the amount it is willing to lend.
This can create a funding shortfall for the buyer.
For example, you may have agreed to purchase a property for $800,000, but the lender’s valuation may be lower.
The lender may then calculate the loan based on its valuation and lending criteria.
You may need additional funds to complete the purchase.
What If I Change My Mind About the Property?
A finance condition is not necessarily a general “change of mind” clause.
If your finance has been approved and you simply no longer want to purchase the property, you may not be able to rely on the finance condition to cancel the contract.
You should obtain advice before taking any action.
Should I Have the Contract Reviewed Before Signing?
If you are buying property subject to finance, having the contract reviewed before signing can be particularly useful.
Your conveyancer can help you understand:
- The finance condition
- The finance deadline
- Deposit requirements
- Settlement date
- Special conditions
- Other important contractual obligations
Having the contract reviewed before signing can be particularly useful to understanding the contract before signing can help you avoid misunderstandings later.
What Should I Do Once My Offer Is Accepted?
Once your offer is accepted and the contract is signed:
- Contact your lender or mortgage broker immediately.
- Provide all requested documents.
- Arrange the property valuation if required.
- Monitor the finance approval process.
- Keep your conveyancer informed.
- Check the finance approval deadline.
- Notify your conveyancer immediately if there are any problems.
Do not assume that someone else is monitoring the deadline for you.
Common Mistakes Buyers Should Avoid
Assuming Pre-Approval Means Final Approval
Pre-approval does not necessarily mean your loan for the specific property has been approved.
Not Checking the Finance Deadline
The finance condition may have a specific date by which action must be taken.
Waiting Until the Last Day
If there is a problem with your finance, leaving it until the deadline can reduce your options.
Assuming You Can Cancel If Finance Is Declined
Your rights depend on the actual wording of the contract.
Forgetting About the Property Valuation
The lender’s valuation can affect how much it is willing to lend.
Making an Offer Without Understanding the Contract
The finance condition is only one part of the contract. The entire Contract of Sale should be understood before signing.
Frequently Asked Questions
What does subject to finance mean?
It generally means the purchase is conditional on the buyer obtaining finance in accordance with the terms of the Contract of Sale.
Is a finance condition guaranteed protection?
No. The protection depends on the exact wording of the contract and whether the required conditions and procedures are followed.
Can I cancel a property purchase if my loan is rejected?
It depends on the contract. If you are relying on a finance condition, contact your conveyancer immediately if your finance is declined.
How long do I have to get finance approval?
The timeframe depends on the contract. Your finance condition should specify the relevant date.
What happens if my finance approval is delayed?
Contact your lender and conveyancer immediately. An extension may be possible if the seller agrees, but it should not be assumed.
Is pre-approval enough to buy a property?
Pre-approval is not necessarily the same as formal approval for a specific property.
What if the bank valuation is lower than the purchase price?
You may need to contribute additional funds if the lender will not provide enough finance to complete the purchase.
Should I get a contract review before making an offer?
It can be very helpful, particularly if you are relying on a finance condition. Understanding the contract before signing can help you make an informed decision.
How Prox Conveyancing Can Help
At Prox Conveyancing, we help Victorian buyers understand the conveyancing aspects of purchasing property, including contracts containing finance conditions.
If you are considering making an offer on a property, we can review the Contract of Sale and explain important contractual terms before you commit.
If your finance is delayed or there is a problem with your approval, contact us as soon as possible so we can help you understand your contractual position.
About the Author
Meet Sally
Sally Kwok is a Licensed Conveyancer and the Director of Prox Conveyancing. With more than 16 years of experience in the conveyancing industry, she is committed to helping buyers and sellers navigate Victorian property transactions with confidence. Sally is passionate about providing clear communication, practical guidance and personalised service throughout every stage of the conveyancing process.
👉 Learn more about Sally on our About page.
About Prox Conveyancing
Prox Conveyancing is a Victorian conveyancing practice providing professional conveyancing services for residential property transactions across Victoria. We assist buyers, sellers, investors and families with a wide range of conveyancing matters, delivering personalised service, transparent communication and professional support from contract through to settlement.
👉 Learn more about Prox Conveyancing on our About page.
This article provides general information only and is not legal advice. Every property transaction is unique, and the information above may not apply to your particular circumstances. If you require advice about your specific situation, please contact a qualified legal professional or licensed conveyancer.