Buying a home is an exhilarating experience, but it can also be a nerve-wracking one. Once you’ve found your dream home, the next crucial step is determining if you can afford it. This is where the term ‘subject to finance’ comes into play. In Australia, this term is a vital aspect of the real estate buying process, and understanding it can mean the difference between securing your dream home and losing it. This article will break down everything you need to know about ‘subject to finance’ in the Australian real estate market.

What Does ‘Subject to Finance’ Mean?

‘Subject to finance’ is a clause included in a property purchase contract that indicates the buyer’s obligation to secure financing for the purchase. Essentially, it means that the sale is contingent upon the buyer obtaining a mortgage or loan approval from a financial institution. If the buyer is unable to secure the necessary financing within a specified timeframe, they have the right to withdraw from the contract without penalty.

Why is ‘Subject to Finance’ Important?

Understanding the ‘subject to finance’ clause is crucial for several reasons:

• Protection for Buyers: This clause protects buyers from being locked into a contract if they cannot secure financing. It provides a safety net, allowing them to back out of the deal without financial repercussions.
• Negotiation Power: Including a ‘subject to finance’ clause can strengthen a buyer’s position during negotiations. Sellers may be more willing to accept an offer that includes this clause, knowing that the buyer is taking the necessary steps to secure funding.
• Time to Secure Financing: The clause typically specifies a timeframe within which the buyer must secure financing. This allows buyers to shop around for the best mortgage rates and terms without the pressure of losing the property.

How to Navigate the ‘Subject to Finance’ Process

Here are some steps to effectively navigate the ‘subject to finance’ process:

1. Get Pre-Approved: Before making an offer on a property, it’s advisable to get pre-approved for a mortgage. This will give you a clear understanding of your budget and strengthen your position as a buyer.
2. Include the Clause in Your Offer: When making an offer, ensure that the ‘subject to finance’ clause is included in the contract. Specify the timeframe for securing financing, typically ranging from 14 to 30 days.
3. Communicate with Your Lender: Keep in close contact with your lender throughout the process. Provide them with all necessary documentation promptly to avoid delays in securing your loan.
4. Be Prepared for Appraisals: Your lender may require a property appraisal to determine its value. Be prepared for this step, as it can affect your loan approval.
5. Understand Your Rights: Familiarize yourself with your rights under the ‘subject to finance’ clause. If you cannot secure financing within the specified timeframe, you have the right to withdraw from the contract without penalty.

Common Misconceptions About ‘Subject to Finance’

There are several misconceptions surrounding the ‘subject to finance’ clause that buyers should be aware of:

• It Guarantees Loan Approval: While the clause allows buyers to back out if they cannot secure financing, it does not guarantee that they will be approved for a loan.
• It Only Applies to First-Time Buyers: The ‘subject to finance’ clause is relevant for all buyers, regardless of whether they are first-time buyers or seasoned investors.
• It Can Be Ignored: Buyers should never ignore this clause. It is a critical part of the contract that provides essential protections.

Hill Legal’s Hot Take

Understanding the ‘subject to finance’ clause is essential for anyone looking to purchase property in Australia. It provides crucial protections and can significantly impact your home buying experience.

If you have any questions about the home buying process or need assistance with contracts, our team at Hill Legal is here to help. Contact us today on 03 5976 6500 for more information and to ensure you navigate your property purchase with confidence. Or visit us at www.hilllegal.com.au to send us a message.