What are a Purchaser’s requirements for a subject to finance clause and why is it important that they do it?

In a Contract of Sale (the Contract) a Purchaser has the option to make the Contract conditional upon obtaining finance approval. This means that if the particulars of the sale specify that the Contract is subject to a loan being approved, the Contract is subject to the lender approving the loan on the security of the property by the approval date or any later date allowed by the Vendor. You can tell if a Contract is subject to finance approval by looking at the particulars of sale and seeing if the box next to loan is checked. If the box is checked then the following information must be added into the Contract:

1. Lender’s name;
2. Loan amount; and
3. Approval date.

The Purchaser has until the approval date to advise the Vendor whether or not they have been approved as to finance. If the Purchaser is unable to obtain finance by the approval date the Purchaser can end the Contract after the contract is signed, but only if the Purchaser:

4. Immediately applied for the loan; and
5. Did everything reasonably required to obtain approval of the loan; and
6. Serves written notice ending the contract together with written evidence of rejection or non-approval of the loan on the Vendor within 2 clear business days after the approval date or any later date allowed by the Vendor; and
7. Is not in default under any other condition of the Contract when the notice is given, for example nonpayment of deposit.

If the Purchaser validly ends the contract then all money paid by the Purchaser must be immediately refunded to the purchaser.

If is of vital importance that if you are a Purchaser you ensure to make immediate application for the loan, otherwise you risk being in breach of the contract and risk losing money.

If you require assistance regarding a Purchase, please contact our office on 03 9707 1155.