Subject to Finance Clause Explained: What Australian Buyers Need to Know

The subject-to-finance clause is one of the most important protections available to property buyers in Australia. It gives you a defined period after signing the contract to obtain formal loan approval from your lender. If your finance is refused within that period and you follow the correct notification process, you can withdraw from the contract and have your deposit returned. Without this clause, you are committed to completing the purchase regardless of whether your loan comes through — and the financial consequences of failing to settle can be severe.

What Is a Subject-to-Finance Clause?

A subject-to-finance clause (also called a "finance condition" or "conditional on finance" clause) is a special condition in a contract of sale that makes the purchase conditional on the buyer obtaining satisfactory finance approval. If the buyer cannot secure a loan within the specified timeframe, the contract can be terminated and the deposit refunded.

The clause protects buyers from being locked into a contract they cannot afford to complete. It is included in most private treaty (non-auction) contracts across Australia and is considered a standard condition.

Standard Wording

While the exact wording varies between states and individual contracts, a typical subject-to-finance clause specifies:

• The amount of finance required (usually stated as a dollar amount or percentage of the purchase price)
• The lender from whom finance is sought (sometimes named, sometimes "a lender of the buyer's choice")
• The deadline by which finance must be approved (a specific date or number of days from exchange)
• The terms that constitute "satisfactory" finance (interest rate, loan type, or simply approval on terms acceptable to the buyer)
• The process for notifying the vendor if finance is not approved

Typical Timeframe

The finance approval period is negotiable but typically ranges from 14 to 21 days from the date of exchange. Some contracts allow up to 28 days, while others may be as short as 7 to 10 days in competitive markets.

The timeframe must be realistic. Lenders typically need 2 to 4 weeks to process a formal application, arrange a property valuation, verify documents, and issue an unconditional approval. If the finance period is too short, you risk the deadline passing before your lender has completed their assessment — which could leave you bound by an unconditional contract.

Pre-Approval vs Formal Approval

Many buyers confuse pre-approval with formal (unconditional) approval. They are very different:

• Pre-approval (conditional approval): An indication from the lender that you are likely to qualify for a loan up to a certain amount, based on preliminary assessment of your income, expenses, and credit history. Pre-approval is not a guarantee — it is subject to a satisfactory property valuation, verification of documents, and final credit checks.
• Formal approval (unconditional approval): The lender has completed all checks, valued the specific property, verified your documentation, and committed to providing the loan. This is the approval that satisfies a subject-to-finance clause.

What Happens If Finance Is Refused

If your lender declines your loan application (or approves it on terms that are not satisfactory to you, as defined in the clause), you may terminate the contract. The process typically works as follows:

Extending the Finance Period

If your lender needs more time and the finance deadline is approaching, you can request an extension from the vendor. This is a common occurrence, particularly when lenders are processing high volumes of applications or when the property valuation is delayed.

Key points about extensions:

• The vendor is not obligated to grant an extension — it is entirely at their discretion
• Any extension should be agreed in writing and signed by both parties
• Request the extension well before the deadline — a last-minute request looks unprofessional and is more likely to be refused
• Some contracts specify a mechanism for extensions (e.g., automatic 7-day extension if written notice is given before the deadline); others require a formal variation

Risks of Waiving the Finance Clause

In a competitive market, some buyers are tempted to waive the subject-to-finance clause to make their offer more attractive to the vendor. This is extremely risky. If you waive the clause and your finance is subsequently declined:

• You are legally obligated to complete the purchase regardless
• If you cannot settle, you will forfeit your deposit (typically 5-10% of the purchase price)
• The vendor can terminate the contract, keep your deposit, and relist the property
• If the vendor sells for less than your contract price, they can sue you for the difference (plus their additional costs — agent's fees, legal fees, holding costs)
• You may face penalty interest for the period between the agreed settlement date and the eventual resolution

Unconditional Contracts

An unconditional contract is one that does not include a subject-to-finance clause (or any other conditions). All auction contracts are unconditional by default — this is one of the key differences between buying at auction and buying by private treaty.

In a private treaty sale, a vendor may request that you sign an unconditional contract. This can happen when:

• Multiple buyers are competing and the vendor wants the most certain offer
• The vendor has already rejected offers with conditions
• The market is heavily favouring sellers

If a vendor insists on an unconditional contract and you are not comfortable proceeding without the finance clause, it is usually better to walk away than to take on the risk. Use Realestate Lens's contract analysis to quickly identify whether a contract includes adequate protections.

When Vendors Refuse the Clause

Some vendors or their agents may push back against including a subject-to-finance clause. Reasons include:

• They have received competing offers without the clause
• They have had a previous buyer use the finance clause to withdraw (sometimes legitimately, sometimes as a way to exit the contract for other reasons)
• They want a quick, certain sale and view the clause as a risk

This article provides general information only and is not legal or financial advice. Always seek professional advice tailored to your specific circumstances before signing a property contract.