The subject-to-finance clause is arguably the most important special condition in any Contract of Sale. It gives you a way out if your lender does not approve your home loan — without losing your deposit. But it is not a blanket safety net, and getting the details wrong can cost you dearly.
What is a subject-to-finance clause?
A subject-to-finance clause makes the contract conditional on you obtaining loan approval from a specified lender, for a specified amount, by a specified date. If you cannot secure finance by that deadline, you can end the contract and receive your deposit back in full.
A typical clause might read: “This contract is subject to the purchaser obtaining approval of a loan of $640,000 from [lender name] by [date], on terms satisfactory to the purchaser.”
Key elements to get right
The finance amount
The loan amount in the clause should match what you actually need. If you're buying at $800,000 with a 20% deposit, specify $640,000. If the clause says $600,000 and your lender only approves $600,000 but you actually needed $640,000, you may not be able to rely on the clause.
The deadline
Finance approval deadlines are typically 14 to 21 days from the contract date. This needs to be realistic — banks can take longer than expected, especially if the property requires a valuation. If you need more time, ask your solicitor to negotiate a longer period or include a right to extend.
The lender
Some clauses name a specific lender. Others say “a lender of the purchaser's choice.” The broader wording is better for you as the buyer, as it allows you to apply to multiple lenders without being locked into one.
What “satisfactory to the purchaser” means
The phrase “on terms satisfactory to the purchaser” is critical. It means you get to decide whether the loan terms are acceptable. If the lender approves your loan but at a higher interest rate than expected, or with conditions you cannot meet, you may still be able to rely on the clause. Without this wording, you might be stuck with whatever the lender offers.
How vendors try to weaken the clause
Experienced vendors and their agents know that the finance clause is the most common reason contracts fall through. They may push back in several ways:
- Shortening the deadline— pushing for 7 or 10 days instead of 14 to 21. This is risky if your lender is slow.
- Requiring evidence of rejection— some clauses require you to provide a written letter of decline from your lender. This can be difficult to obtain quickly.
- Removing “satisfactory to the purchaser”— this limits your flexibility to reject unfavourable loan terms.
- Making the clause “for the benefit of the vendor”— this means the vendor can waive the condition and force you to proceed even if finance has not been approved.
Your solicitor should review the exact wording carefully. A poorly drafted finance clause can leave you exposed.
What happens when the deadline arrives?
If your finance is approved before the deadline, the condition is satisfied and the contract becomes unconditional. If finance is not approved, you must actively notify the vendor(through your solicitor) that you are ending the contract. Simply letting the deadline pass without doing anything is dangerous — some contracts contain “deemed approval” clauses, meaning silence is treated as confirmation that finance was approved.
No finance clause at auction
Remember that if you buy at auction, there is no finance clause. The contract is unconditional from the moment the hammer falls. You must have your finance pre-approved before bidding.
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