Your get out of jail free card - the finance approval date

In the fortunate position you could find yourself negotiating on a private sale to buy a home, rather than bidding at auction, there is key clause to build into your contract which will ultimately protect you as a buyer.

Many home buyers would have heard of clauses such as 'subject to finance' or 'subject to building and pest inspection' being built into offers. These clauses enable the purchaser to potentially exit the contract and not continue with the purchase if there is for example, an issue with obtaining finance or something unforeseen coming up in the building and pest inspection.

However, the most crucial part that any home buyer needs to understand and include in their offer in conjunction with these clauses is the finance approval date.

What is a finance approval date and how does it work with a contract?

When you make an offer with conditions (such as subject to....) the most important factor which is built into your offer is the inclusion of a finance approval date. This is the date by which you need to have an unconditional approval on your loan so that you know that you can proceed with the purchase.

It is also your 'get our of jail free' card. Up to the finance approval date agreed on the contract, you as the buyer can potentially walk away from the purchase (without cost), if you have an issue with your finance approval or pest inspection if such clauses are built into your offer.

How long should a finance approval date be when making an offer?

Ideally, you should already be fully preapproved before you make an offer so that submitting a signed contract to purchase is the last step in having your finance fully approved. In this case, the general rule of thumb is 7-10 working days with respect to the finance approval date.

A real estate may encourage you to go for a shorter period of time. However, this only places pressure on you having your finance go unconditional in a shorter amount of time.

What happens if you still don't have your finance approved just before the expiry of your finance clause?

Sometimes, even when you have a finance approval date built into the contract, a buyer may still find that their finance has not gone unconditional within this specified time period. In this case, it is crucial that you as the buyer liaise with your conveyancer to request an extension of your finance clause on your behalf, with the seller's conveyancer.

This should never be an informal conversation had with an agent that 'she'll be right' if you don't have your finance approved in time. It needs to be a formal request from your conveyancer to the other side.

What if I just let my finance expiry date lapse?

The danger for any buyer is if you let your finance approval date expire, without the certainty that your loan is approved. If there is subsequently an unforeseen issue with the property you have purchased that prevents you from getting a loan or only enables you to get a loan which is lower than what you expected, you must proceed no matter what.

No one wants to be in the position where they are having to continue with a contract where there is an issue with finance or the property you have purchased.

Therefore, more than ever, in addition to the conditions you choose to build into your offer, the finance approval date is a crucial part of protecting yourself as the buyer.

What to include in your offer?

Your conveyancer can assist with specific wording of your offer with regards to conditions to ensure that you are appropriately protected when making an offer.

Your broker is the best person to refer to when discussing and deciding upon the most appropriate length of time to choose for your finance approval date.

So, not only is it important that you include this date, it is crucial to receive advice from your broker as to how long you should request when building your offer.

As a buyer you need to protect yourself as much as possible. The finance approval date is a crucial piece of your arsenal to help you to achieve this when buying a home.

This article is of a general nature only and is not meant as specific, personal advice. As such it should not be relied upon without first seeking advice relating to your own personal situation from a relevant qualified party.