How the finance condition works
A signed property contract is legally binding even when it is subject to finance. The finance condition creates contractual rights and obligations that apply during the specified period.
Under the standard Queensland residential contract, the finance amount, financier and finance date need to be completed for the standard finance condition to apply. The buyer is generally required to take reasonable steps to obtain finance.
Before the finance date, the buyer should obtain advice about whether to confirm that the condition is satisfied, waive it, request an extension or terminate under the clause. Any notice must be given in the form and timeframe required by the contract.
If the buyer does not give the required notice by the finance date, the contract may give one or both parties further rights. Do not assume the condition continues automatically or that additional time is available. Contact your solicitor or law practice before the deadline.
Approval in principle and property specific approval
An approval in principle is an early indication of how much a lender may be prepared to lend based on the information available at that time. It is not a guarantee that the lender will approve a particular property or final loan.
The lender may still need to assess the property, obtain a valuation, verify updated financial information and consider any requirements specific to the loan or security. Written approval may also contain conditions that remain outstanding.
Your lender or broker can explain the lending position. Your solicitor or law practice should advise whether that position is sufficient for the purpose of the finance condition in your contract.
Timeframe
There is no single finance period that suits every purchase. The timeframe should reflect the lender's likely processing time, valuation requirements, the buyer's preparation and the contract terms. A lender or broker can advise on the expected finance process, while a solicitor or law practice should advise on the contractual date and legal consequences.
If the standard finance details are left incomplete, the standard finance condition may not apply. A contract without finance protection may still contain other conditions, so it is not necessarily unconditional. The important point is that difficulty obtaining finance may not provide a right to terminate. Obtain legal advice before signing.
A lender valuation below the purchase price may reduce the amount the lender is prepared to advance. The buyer may need to contribute additional funds, reconsider the purchase or obtain advice about any rights available under the finance condition. A valuation shortfall does not automatically terminate the contract. Finance Fundamentals explains approval in principle, property valuations, loan to value ratio (LVR) and lenders mortgage insurance (LMI).
A lender saying an application is progressing is not the same as knowing the finance condition has been satisfied. Your lender or broker advises on the loan. Your solicitor or law practice advises on the contract, notices and deadlines. Both parts need to be understood before the finance date.
Set a workable finance condition
A competitive situation can create pressure to shorten or remove a finance condition. Before agreeing, understand what lending enquiries remain, whether a valuation is required and how much time the lender is likely to need.
A lender or broker can provide information about processing times and outstanding requirements. A solicitor or law practice should review the proposed condition and explain the consequences of shortening, waiving or removing it.
Finance amount completed
Confirm that the amount recorded in the contract reflects the finance protection you require.
Financier completed
Check how the financier is described and whether the wording allows for the lender or lending pathway you intend to use.
Finance date is realistic
Ask your lender or broker how long the application, valuation and approval process is likely to take before agreeing to the date.
Application documents are ready
Prepare the financial information and supporting documents the lender requires so the application can progress promptly.
Property valuation requirements are understood
Confirm whether the lender requires a valuation and consider how a valuation shortfall would affect your available funds.
Notice process is understood
Ask your solicitor or law practice who will give any required notice, what the notice must say and when it must be received.
Remaining approval conditions are known
Confirm whether written lender approval contains any conditions that must still be completed before funds will be available for settlement.
If finance is delayed, an extension can be requested before the finance date. The seller is not required to agree. Any extension should be documented correctly through the parties' legal representatives. Do not rely on an informal conversation with the selling agent.
A successful purchase at auction in Queensland is generally unconditional and there is no cooling off period. Buyers should review their borrowing position, lender requirements, valuation risk and available funds before bidding. Approval in principle does not protect a buyer who is required to complete an unconditional auction contract.