How do you buy a property subject to finance?

If you’re not buying at auction, it is possible to purchase a property subject to getting a loan approval within a specified time.

This is done by using the Loan paragraph in the Particulars of Sale.  This has three elements:

• Lender: The name of the financial institution from which a Loan Approval is being sought.
• Loan Amount: The minimum amount of loan funds sought, i.e. if the financial institution offered you a loan for less than this amount, you would not have enough to complete the contract.
• Approval date: The last date that you can end the contract without penalty if your loan application has been declined.

In essence, using the Loan paragraph makes the contract conditional and grants you as the purchaser the option to end the contract if you do not obtain your Loan Approval.  By its very nature, vendors dislike offers made subject to finance because they don’t know if the property has actually been sold until the purchaser has received their Loan Approval, and whilst waiting for this advice they are unable to offer the property to an alternative purchaser.

After the Loan Approval date has passed, the contract becomes unconditional unless it has been ended by the purchaser, and the purchaser must do this within 2 working days of the Approval date.

If your financial institution has neither granted your Loan Approval or issued a Loan Declined letter by the Approval date, you can ask the vendor to extend the Loan approval date to give the financial institution more time to make its decision, although the vendor is not obligated to grant such an extension.  In such a case, you would most likely have to end the contract.

For more information about contracts and purchasing subject to finance, please contact Glenferrie Conveyancing in Northcote on 03 9815 2351.