Beware...the 'finance clause' when buying a property
'Subject to finance' has frequently been the default clause written into contracts by prospective buyers, in order to cover themselves in the event that there is an issue with their finance.
While this clause is essential when considering signing a contract there is an equally important date you need to look out for when buying a property. It is the agreed 'finance approval date'. This is the date by which you, as the buyer, needs to have their finance approved in full. Up until that date occurs, a buyer can still exit the contract if an issue arises in the final assessment of their loan or the valuation comes in short and as such they need to walk away from the sale.
A subject to finance clause can therefore give a false sense of security for a buyer, if the contract actually has a very short finance approval date timeframe. After your approval date has passed, that scope to walk away is gone. You must buy no matter what.
The issue in the current environment is that the seller (perhaps via the agent) are reluctant to give very long finance approval timeframes. Naturally a seller does not want to have their property off the market for any extended period of time if it eventuates that the buyer needs to exit the contract.
However, compounding this issue, buyers are being confronted by slow turn around times with many banks. Buyers are then finding themselves in no mans land where they are in the waiting game, with time fast running out, with no answer as to whether their loan is going to go unconditional. This is assuming they have been preapproved in the first place.
What eventuates are very stressed buyers stuck in the middle of the process; they are at the mercy of the short finance approval timeframes often being written into contracts by sellers up against the slow turn around time frames currently being experienced with many banks. The consequences of not having a final decision on a home loan application loan before the finance approval date expires, could be massive for the buyer.
So what to do? In the fortunate situation where you are negotiating on a property private sale (finance clauses do not apply for auctions), speak in detail with your broker about what is the appropriate finance approval date that should be agreed to prior to signing the contract. Pay attention to the finance approval date that the agent/seller is wanting in the contract. Then use the knowledge and expertise of your broker regarding the turnaround times you are up against with your bank. Build an acceptable date into the contract that works for all parties.
As the buyer, you then may save yourself the extreme anxiety that comes with having too short a finance approval date written into the contract, in conjunction with your subject to finance clause. Waiting to hear if your loan has gone unconditional with your bank is potentially one of the most stressful parts of the buying process. Knowing how to manage this is key.
Speak to your broker about what you should do in your situation to avoid unnecessary stress in what is already a anxious time for many buyers.