A finance condition is the most common condition in contracts for the sale and purchase of land, whether residential or commercial.
However, the finance condition is also the condition that trips clients up the most and delays settlement the most.
In this article, I will step through what you need to do to give you the best chance of getting finance approval and getting to settlement on time.
Get the bank involved
If you are a buyer, make sure that you send the Contract to your banker or finance broker as soon as it is signed. Hopefully, there is pre-approval for finance already in place. Under the finance condition, you will want to get full unconditional approval for finance.
This takes time. The bank will often conduct a valuation of the property before giving you full unconditional approval.
So the longer you give the bank, the better!
Review the offer of finance
Once you have got final approval for finance, go through the offer carefully.
Some questions to ask are –
- Will the loan amount be enough? Does it cover any transfer duty payable?
- Is the term of the loan what I agreed originally?
- Am I happy with the interest? Does it match the interest on the pre-approval?
- Is there any conditions on the finance approval that I need to fulfil?
Once you are happy with the offer of finance, you will need to:
Tell your Solicitor
If you are happy with your offer of finance, you will need tell your solicitor this and send them a copy of the finance approval.
The finance condition under the contract is a ‘critical date’. This means that your solicitor will need notify the seller’s solicitor by 5pm on the due date whether you –
- Satisfy the condition;
- Waive the condition (effectively say you don’t need finance approval); or
- Terminate the Contract because you can’t get finance approval.
It is very important to give your solicitor instructions on what notice you want given to the seller. If 5pm on the due date passes and you haven’t given notice, the seller is able to terminate the contract (on the basis that they have not heard from you).
Please see below what happens if you can’t get finance approval.
Sign the Loan and Mortgage documents ASAP
After you have accepted the offer of finance. The bank will send you loan and mortgage documents for you to sign and return.
You will need to sign the documents and get them back to the bank AS SOON AS POSSIBLE. This can’t be done a day before settlement or even a couple of days before settlement.
The bank needs time to review the signed documents and get ready for settlement.
This can take a week or more for the bank to organise.
Failing to get loan and mortgage documents back to bank ASAP is the biggest reason for delays in settlement that we see.
Once you have signed and returned the loan and mortgage documents, it is then over to your solicitor. They will need to co-ordinate with the bank to make sure the bank gets any extra information it requires and they will book in settlement when the bank is ready to go.
What happens if I can’t get finance approval?
Unfortunately, sometimes you cannot get unconditional finance approval. This may be because your situation changes or the bank valuation comes back less than expected.
In this situation, unless you have other funds available to you, you may wish to terminate the Contract.
You will need to obtain a formal rejection letter from a bank. You do have an obligation to take reasonable steps to obtain finance approval. If you cannot produce a formal rejection letter to the seller, they may not accept your termination.
What happens if I can’t get my finance approval in time?
Speak to your solicitor. You can usually ask the seller to extend the due date for finance approval.
This is not an ideal fall-back position, as the seller might not grant you the extension and instead terminate the contract (if it is past 5pm on the due date).
Do I lose my deposit if the contract is terminated?
Under the standard REIQ Contract terms, regardless of which party terminates under the finance condition, as long as the termination is lawful, the deposit will be refunded to the buyer.
If you have concerns about you need to do, please contact our office to discuss.
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