When purchasing property in Victoria, the option to include a “Subject to Finance” clause in your offer can be a significant consideration. This clause can provide essential protection for buyers, especially if your finance has not yet been fully approved. However, it is important to weigh the advantages against potential drawbacks, as it may also weaken your bid when making an offer on a property. Understanding the implications of this clause is crucial for making an informed decision.

What Does “Subject to Finance” Mean?

A “Subject to Finance” clause in a property purchase agreement means that the buyer’s obligation to complete the purchase is contingent upon obtaining finance approval from a lender. This clause protects buyers by allowing them to withdraw from the contract without penalty if they are unable to secure the necessary funds within a specified timeframe.

Advantages of Buying “Subject to Finance”

• Protection Against Financial Risk: If your finance is not approved, this clause allows you to back out of the purchase without losing your deposit or facing legal repercussions.
• Time to Secure Financing: It provides you with time to finalize your loan application and secure the best possible financing options.
• Peace of Mind: Knowing that you have a safety net can reduce stress during the buying process, allowing you to focus on finding the right property.

Disadvantages of Buying “Subject to Finance”

• Weaker Offer: Including a “Subject to Finance” clause may make your offer less attractive to sellers, especially in a competitive market where multiple bids are common.
• Potential for Delays: If your finance approval takes longer than expected, it could delay the settlement process and create complications.
• Negotiation Challenges: Sellers may be less willing to negotiate on price or terms if they perceive your offer as less secure due to the finance clause.

When to Consider a “Subject to Finance” Clause

It is advisable to consider including a “Subject to Finance” clause if:

• You are unsure about your finance approval timeline or have not yet received formal approval from your lender.
• You are a first-time buyer or have limited experience in securing financing for property purchases.
• You are purchasing a property that requires significant investment or renovation, and you want to ensure that your financing is secure before committing.

Alternatives to “Subject to Finance”

If you are concerned about the potential drawbacks of a “Subject to Finance” clause, consider the following alternatives:

• Pre-Approval: Obtain a pre-approval from your lender before making an offer. This can strengthen your position and demonstrate to sellers that you are a serious buyer.
• Shorter Finance Clauses: Negotiate a shorter timeframe for the finance clause, which may make your offer more appealing while still providing some protection.
• Conditional Offers: Explore other conditional offers that may provide flexibility without explicitly stating “Subject to Finance.”

Deciding whether to buy “Subject to Finance” in Victoria requires careful consideration of your financial situation and the current property market. While this clause offers essential protection, it may also impact the competitiveness of your offer. Weighing the pros and cons and considering alternatives can help you make an informed decision that aligns with your goals as a buyer.

Hill Legal’s Hot Take

At Hill Legal, we understand that navigating the property market can be complex, especially when it comes to financing options. If you have questions about including a “Subject to Finance” clause in your property purchase or need assistance with any aspect of the buying process, we encourage you to reach out to our experienced team. Contact Hill Legal today on 03 5976 6500 for personalized guidance and support in your property journey. Visit us at www.hilllegal.com.au for more information or to send us a message.