Do not legally bind yourself into purchasing a property if your home loan application can be declined a few days later; it can be financially devastating. Home buyers, please read this article and learn how to protect yourself by including a “subject to finance” clause in your contract of sale.
Why Do Home Buyers Need A “Subject to Finance” Clause?
When preparing a contract of sale, you have the option of including a “Subject to Finance” clause in the contract.
It is a condition that ensures that you are not obligated to pay for the property until the funding expected from your lender has been unconditionally approved.
It’s common sense. Why would you legally obligate yourself to buy a house when your lender could change its mind and deny you the money that you depend on?
Believe it or not, it happens. Tick Box Conveyancing has heard of it happening too many times.
If you are buying with the financial assistance of a lender (such as a bank) you must have a “subject to finance” clause in the contract to be protected from the possibility of rejection by your lender.
What Does Subject To Finance Mean?
If you are about to sign a contract of sale, you are probably anticipating financial cover from a lender. However, whilst you might have a pre-approval, that does not mean the loan is locked in.
You may have been told that your loan is “pre-approved,” approved “subject to conditions” or approved “subject to valuation”. If so, then please be aware that your mortgage is not locked in.
And loans that are “subject to valuation” are very common. This condition is common because lenders like to be certain that the actual value of the property matches the price that they are covering for you.
After all, if you fail to pay your mortgage, your lender will need to sell the property to recoup their losses. If the value of the property is revealed to be lower than the inflated price that you signed up for, they will sell the property at a loss. To avoid that happening, they will reject your loan if the valuation shows that the price is too high.
Further Conditions of “Subject to Finance”
To successfully make use of your contract’s “subject to finance” clause and exit a property purchase, you first must tick the following legal boxes:
- You must have immediately applied for the loan in question.
- You must have done everything reasonably required to obtain the loan.
- You must have given the vendor written notice that you are cancelling the contract within 2 clear business days after the approval date.
- You are not in a “default” state i.e. you must have still fulfilled your other contractual obligations such as paying a deposit by the due date as specified in the Contract.
Following a successful exit of the contract, you will be refunded the deposit without deduction.
Who can provide advice on “Subject to Finance” clauses?
Tick Box Conveyancing can make sure that your contract of sale is written to protect you and favour you.
We assess the legal ins and outs of the purchases that you intend to make.
In our pre-purchase report, you receive all there is to know about buying the property, every risk, including things you may not have thought to research yet, such as the local council laws and how they impact the usage of your property.
In this cutthroat market, it is important to follow the advice of people who have been in it for decades.
If you wish to exit a contract with a “subject to finance” clause, it is vital that you enlist us to represent you and negotiate on your behalf in this tense, time-sensitive situation.
Contact us today for a free 15-minute evaluation. It’s never too late to contact us, even if you’ve already signed a Contract of Sale.