How Finance Conditions work

Who’s in charge?

You are. It’s your property and your money.

Clearman Lawyers has been through this process many times. Our job is to help you make good decisions, not make them for you.

When your lender sends a finance offer, read it carefully. There are traps in these documents that are easy to miss. We’ll help you spot them before you sign anything.

What does ‘finance application’ mean

To buy with borrowed money, you’ll need to complete a finance application. Your lender will want to know your income, savings, business financials, debts and expenses. They’ll review everything, ask for supporting documents, and tell you whether they’ll lend.

What does ‘finance condition’ mean

A finance condition is your safety net, but it has teeth too.

If your lender rejects your application, you can terminate the contract. Done correctly under an unmodified REIQ contract, there are generally no penalties and your deposit comes back.

But the conditions are narrow. If you try to terminate without meeting the contract requirements precisely, you risk losing that protection entirely.

Communication

Your finance position is private. That doesn’t change when you’re buying a property. The agent is friendly, but they work for the seller. Loose lips, sink ships. We recommend sharing little beyond “we’re working on it.”

Point of No Return

Often the finance condition is where contracts become unconditional. After the seller has been advised that finance is approved (assuming no other contract conditions) then the buyer must go through with the purchase or be in breach of contract.

Finance conversation

Clearman Lawyers:  Hi Julie how is your finance going?

Julie: I’m not sure. I’m waiting to hear from my broker / lender.

Clearman Lawyers: Ok. Well, your finance condition is due tomorrow so we recommend you give your broker / lender a call to get an update and push it along.

Julie: What happens if finance isn’t approved by tomorrow? Is it bad? Does it magically go unconditional and put me at risk? Will I lose my deposit?

Clearman Lawyers: That’s a good question and here are the pathways:

Approval

If your broker / lender “approves” your finance application we go through it together see what it really says. We want to make sure for example that your names are spelt correctly, the interest rate is right and it’s really an unconditional approval and then you might instruct us to advise the seller that finance is approved. Often, even though the heading might say “unconditional approval” there are conditions (for example: close other loans, valuation, close credit cards, provide insurance and other documents) and you need to really check if you can satisfy the lender so they’ll bring funds to settlement.

Finance NOT approved

If you just can’t get finance (acting reasonably including multiple attempts) you could terminate the contract. If you’re acting reasonably, any deposit money should be returned to you./

Extension

If you don’t get the approval in time there are a few options and a possible issue. Firstly, we can ask the seller for an extension for the finance date (and maybe the settlement date too) for a few days or weeks as needed and see if they agree. You can’t force the seller to extend the finance date, it’s up to them and if finance isn’t confirmed in time, in a standard REIQ contract, the seller then has the right to terminate if they want. Some clients make the mistake of thinking that if we request something from the other side, time freezes until they respond. What really happens is that timeframes keep ticking and there may be consequences.

Seller’s rights

For the standard REIQ contract (other contracts might be different), it’s important to know that at 5:00pm on the finance date the buyer’s rights don’t change (you still have the right to confirm finance or terminate) but the seller gains the right to terminate. They have to passively wait for you until 5:00pm, but after that time, if they had another buyer lined up for example, they could terminate the contract with you.

Julie: Ok, that makes sense. I’ll give my broker a call. Also, I haven’t received my loan documents yet.  

Clearman Lawyers. That’s ok, usually your bank won’t produce and send you the loan documents until they’ve approved your finance. So approval and signing loan documents are both important steps, but they don’t have to happen at the same time.

Example typical ‘finance approval’ letters from lenders

Commercial example

Dear Ken,

Thank you for choosing to bank with Big Bank. I refer to your application relating to the new commercial property purchase. I am pleased to advise that the following has been formally approved under borrowing Entity:

• Borrowing entity: Green Pty Ltd ATF Blue Family Trust
• Business Loan Variable – $1,850,000.00
• Business loan term: 3 years
• Repayment type: Principal and Interest
• Notional business loan term: 25 years

The following conditions must be acceptable for formal approval:

• Valuation issues
• Satisfactory evidence of credit card ending “..215” being closed prior to settlement
• Copy of the lease of Unit 12, 791 Slogan Road, Woolloongabba, QLD, 4102 the terms of which must be acceptable to us and confirmation of minimum level of rental payments of not less than $258,850 and term with a weighted average lease expiry of not less than 3 years from trading entity to the SPV holding entity.
•  Acceptable public liability with a minimum value of $10,000,000
• A copy title of land transfer form for the property

Residential approval letter 1

Dear Valued Client and Ms Excellent Broker

• Facility Type: Big 4 Bank Tailored Home Loan Variable Rate Choice Package – 100% Offset
• Amount $1,234,567
• Loan Term: 30 yrs

Thank you for your recent home loan application. We are pleased to confirm that it has been unconditionally approved.

Where to from here? We will issue loan contracts based on the information provided.

You need to be aware that although you have received formal approval, there are some situations that may impact finalisation of your loan. These include changes to your financial situation, the suitability of your security and any other aspects relevant to your application.

If you have any questions, please contact Ms Excellent Broker.

Residential approval letter 2

Your Recent Housing Loan Application

We have pleasure in advising that your application has been approved subject to your

entering into a formal loan agreement with us and meeting all of the settlement conditions.

Loan Purpose Owner Occupied Purchase

• Amount of Loan $678,900
• Term 360 months
• Indicative Loan Repayments $1,245.67 per fortnight

Happy Apple Solicitors will now send you our formal Offer and Loan Contract setting out the mandatory disclosures plus any settlement conditions that need to be met.

Please note that this approval letter is not an offer of a loan and does not create any legal obligations. We are not obliged to fund a loan until you have entered into a formal loan agreement with us by accepting our Offer and Loan Contract and you have also met all settlement conditions.

• Valuation issues
• bank policy issues / significant economic changes or property market changes