One Financial Clause That Could Save Your Deposit

Buying a home is an exciting milestone, but it often comes with a fair share of worry, especially about securing finance. That’s where the finance clause comes in. 

In a property contract, the finance clause makes the sale conditional based on whether or not you obtain finance approval. That means if your loan falls through, you might be able to back out and keep your deposit.

Keep reading to learn more about the finance clause, how it gives prospective home buyers peace of mind, and more practical tips for buyers. 

What is a Finance Clause?

In Queensland, property contracts commonly include a finance clause, sometimes called a “subject to finance” clause. This clause means your purchase is only confirmed if you get formal loan approval from your lender by a specific date.

If you don’t get the finance approval by the finance date, the clause gives you the right to cancel the contract without penalty, allowing you to get your deposit back. Without this clause, if financing falls through, you could lose your deposit and face breach of contract claims.

What Needs to be in the Finance Clause?

The contract must specify three key things to make the finance clause valid:

• Finance Amount: The total loan amount you’re seeking.
• Financier: The bank or lender providing the loan.
• Finance Date: The deadline by which you must secure finance approval.

If any of these are missing or unclear, the contract might not be “subject to finance,” meaning you could be locked into the purchase even if you don’t get your loan.

Why the Finance Clause Matters So Much

Buying a home is a big financial commitment, and sometimes loans don’t get approved for reasons outside your control, like changes in lending policies, or your financial situation.

The finance clause is there to protect buyers in complex financing situations. 

That being said, the clause isn’t a free pass to back out. To rely on it, you need to:

• Take all reasonable steps to get your loan.
• Provide proof, if needed, that you tried your best to get finance.

Failing to do this could forfeit your deposit or even result in you facing damage claims.

Practical Tips for Buyers

Navigating the finance clause can feel daunting, especially if you’re new to the Queensland property market. The good news? With early preparation, you can take plenty of simple steps to make the process less stressful and increase your chances of a successful purchase. Here are some practical tips to help buyers stay on track and protect their interests when dealing with finance conditions in a property contract:

• Pre-approval is Key: Before signing a contract, get a pre-approval or conditional approval from your lender. This won’t guarantee final approval, but it gives you a clearer idea of your borrowing power. Speak to a conveyancer for buyers if you need support.
• Keep an Eye on the Finance Date: You usually have about 14 to 21 days from signing the contract to meet the finance condition. Mark this on your calendar and stay on top of it.
• Communicate Early: If you think you won’t meet the finance deadline, inform your conveyancer or solicitor right away. They can advise on your options, like asking for an extension.
• Document Your Efforts: Keep records of loan applications, lender communications, and any rejection letters. These might be important if you need to prove you took reasonable steps.

For Sellers: What the Finance Clause Means for You

If you’re selling, the clause means buyers can cancel if they fail to get finance, which can delay the sale. It’s sensible to look for serious buyers and ask for evidence of finance pre-approval before signing contracts. Clear communication and professional conveyancing for sellers can help keep sales on track.

What Happens When You Get Finance Approval?

Once your lender gives unconditional finance approval (meaning all conditions are met), you or your conveyancer must notify the seller or their agent in writing. This is called “satisfying the finance condition,” and from this point on, you’re committed to completing the purchase.

If you decide not to proceed after finance approval, the clause won’t help, and you risk losing your deposit and legal consequences.

Potential Disputes Around Finance Clauses

Sometimes buyers and sellers disagree on whether the financing condition was properly met. For instance, buyers might struggle to prove they took reasonable steps to get finance, or sellers may suspect buyers are using the clause to get out of a contract without a valid reason.

Getting good legal advice from a buyer’s solicitor helps manage these risks early.

How Seeking Professional Legal Support Can Help

Contracts can be complex with strict timelines and precise wording needed for clauses to work as intended. Mistakes in drafting or understanding a finance clause can lead to serious financial loss.

Hiring an experienced conveyancer in Townsville or a property lawyer ensures the clause protects you properly and that you understand your rights and responsibilities.

Summary Checklist for Your Finance Clause

• Ensure the finance clause clearly states the loan amount, lender, and approval deadline
• Get pre-approval before signing if possible
• Act promptly to get full finance approval
• Keep records of all finance applications and communications
• Notify the seller once your financing condition is met
• Ask your conveyancer for advice if you need an extension or if problems arise

Need Help With Property Contracts?

Navigating property contracts and finance clauses can be tricky, but expert advice makes the process easier and safer. Our team of conveyancers in Townsville is ready to help you understand your contract, review your finance clause, and guide you every step of the way.

Contact Townsville Conveyancing Centre today for a free consultation or contract review and start your property journey with confidence.

Disclaimer: This blog is intended for informational purposes only and does not constitute legal advice. For guidance tailored to your specific circumstances, please consult a qualified legal representative.