Buying property in Australia is an exciting but often high-stakes process. Whether you’re a first-home buyer or an experienced investor, it’s essential to protect yourself from financial risk—especially when it comes to your loan approval.
One of the most important clauses you’ll encounter in a real estate contract is the “subject to finance” condition. But what does it really mean, and how does it help protect you as a buyer?
In this article, we’ll explore:
- What the “subject to finance” clause is
- Why it matters in Australian property transactions
- What could go wrong if you skip it
- How to use it properly to protect yourself
If you’re navigating the legal side of a property purchase, it’s also a smart move to get support from experienced conveyancing professionals who can review your contract and ensure all key conditions are included before you sign.
What Does “Subject to Finance” Mean?
“Subject to finance” is a conditional clause included in a property purchase contract. It means the buyer agrees to purchase the property only if they can obtain formal finance approval—typically from a bank or lender—within a specified time frame (usually 14 to 21 days).
If finance is not approved within the timeframe, the buyer has the legal right to terminate the contract without penalty and have their deposit refunded in full.
Why Is It So Important?
While you may have a pre-approval or a good relationship with your lender, final finance approval isn’t guaranteed. Changes in your circumstances, the lender’s valuation of the property, or interest rate shifts can all affect the outcome.
The “subject to finance” clause offers crucial protection, allowing you to back out of the contract without losing your deposit or facing legal consequences if your loan falls through.
How the Clause Works
Here’s how a standard “subject to finance” clause typically functions in Australia:
- Included in Contract – You or your conveyancer insert the clause into the contract of sale before signing.
- Finance Period – The contract specifies a number of days (e.g., 14 or 21) to obtain finance approval.
- Notification – Once approved, your lender or broker confirms finance in writing. You then notify the seller (usually through your solicitor or conveyancer).
- If Denied – If finance is declined, you can terminate the contract within the timeframe and your deposit must be returned.
⚠️ Important: If you fail to notify the seller by the deadline, the seller may treat the contract as unconditional, putting you at risk of losing your deposit or being forced to settle.
What Happens If You Don’t Include It?
Omitting a “subject to finance” clause makes your offer unconditional. That means:
- You’re committing to buy the property regardless of whether you secure a loan.
- If finance is denied, you could lose your deposit or be sued for breach of contract.
- You may face serious financial strain if you’re forced to borrow at higher rates or sell the property quickly.
This is especially risky if you’re bidding at auction, where contracts are unconditional by default.
Can You Still Include It After Signing?
In most cases, no. Once the contract is signed, it becomes legally binding. You cannot add conditions afterward without the seller’s consent, and they’re not obligated to agree.
That’s why it’s crucial to have your contract reviewed by a licensed conveyancer or solicitor before signing—especially if you’re not buying with cash.
Tips for Making the Most of a “Subject to Finance” Clause
Here’s how to ensure your clause works in your favour:
✅ Be Specific
Include:
- The name of the lender (optional but helps clarify)
- The loan amount
- The approval deadline
This makes the clause enforceable and protects against ambiguity.
✅ Set a Realistic Finance Period
Typical timeframes are 14 to 21 days. Make sure your broker or lender can meet this before you agree to it.
✅ Communicate Clearly
If finance is approved, notify the seller in writing before the deadline. If declined, do the same—don’t let the deadline lapse without action.
✅ Understand Your Obligations
Lenders may ask for updated documentation before final approval. Keep your financial information ready and respond quickly.
Common Buyer Misunderstandings
Let’s bust a few myths:
❌ “Pre-approval means I’m safe.”
Wrong. Pre-approval is not binding and is subject to conditions. The lender can still decline the final loan application.
❌ “If I lose my job after signing, I can just back out.”
Only if your contract is subject to finance and the loan is declined during the finance period. Once the clause expires or approval is given, you’re legally bound to proceed.
❌ “I can always extend the finance clause.”
Extensions are not automatic. The seller must agree in writing. If they refuse, you may have to make a tough decision.
What If the Seller Rejects the Clause?
Some sellers—especially in a competitive market—might prefer offers without finance conditions. In that case, you have a few options:
- Shorten the finance period to show you’re serious
- Strengthen your pre-approval and provide proof of funds
- Negotiate other favourable terms, such as a quicker settlement, to balance the condition
Never remove a “subject to finance” clause unless you’re absolutely certain you can complete the purchase without it.
Conclusion
The “subject to finance” clause is one of the most important legal safeguards you can include in your property purchase contract. It gives you time to secure your loan and the confidence to proceed, knowing you won’t be financially trapped if finance falls through.
Always make sure this clause is clear, enforceable, and reviewed by your conveyancer before you sign anything.
At Jim’s Property Conveyancing, we help buyers navigate contracts with peace of mind. Our experienced team ensures every clause is in your best interest—so you can move forward with confidence.