As we all know, the COVID-19 pandemic is having an unprecedented impact worldwide. Even though restrictions are currently easing in Queensland, unfortunately the pandemic may still have a significant effect on your conveyance and for that reason we are here to help you out more than ever!
What is the purpose of a finance clause in a contract?
Most standard contracts have a finance condition, which is usually between 7-21 days and allows a buyer to obtain finance approval satisfactory to them to proceed towards settlement.
If a finance approval from a bank comes back unsatisfactory for you to be able to proceed, or gets completely declined, then you are usually able to terminate the contract and have your deposit refunded.
We always recommend having a finance condition in a contract, unless you are unconditionally pre-approved, otherwise you risk being in breach of contract and, among other things,losing your deposit.
For more information, please ensure you contact us so we may review the contract before you sign it to ensure that the contract is in fact subject to finance approval as sometimes it may not be completed correctly, or it may not be a standard REIQ contract.
What does ‘unconditional contract’ mean?
Once your finance is approved, you can then instruct us to notify the seller’s lawyer of your approval, and we move towards settlement.
Once all other conditions (if any) such as building and pest, due diligence or anything else required of you or the seller to complete by a certain timeframe are satisfied, the contract becomes unconditional. This essentially means there is nothing else left to do by either party under the contract, except settle.
What happens if my finance approval gets withdrawn once the contract becomes unconditional?
Once we notify the seller’s lawyer of your contract becoming unconditional (plus the satisfaction or waiver of any other conditions in the contract), you cannot generally pull out of the contract.
If you did try, then you could potentially be in breach of contract and lose your deposit. The seller may also have the right to sue you.
Should your financial circumstances change due to COVID-19 (for example, losing your job), it may be possible for a bank to withdraw your finance approval after having issued the formal approval to you. .
The risk is not as high for a “normal” contract for existing property, which generally has a short settlement timeframe of 7 – 14 days from the date finance is approved, compared to off the plan contracts which can have months to years to run until settlement .
In saying this, please note that the circumstances down the track when purchasing off the plan may change for reasons other than COVID-19. Any finance approval granted will usually lapse after (three) 3 months. If the development takes longer than (three) 3 months to finalise, then you will generally need to reapply for finance approval.
What can you do to avoid the bank withdrawing finance approval?
We always recommend having a finance condition of between 14- 21 days, whilst checking with your broker first, and a settlement timeframe of no longer than 14 days after finance is approved. This is a timeframe which we usually recommend you double check with your broker, however it seems to work the best.
There is less of a timeframe from the date your finance is approved and settlement occurs for financial circumstances to change for you.
Who should you speak with to assist with your purchase?
If you are getting cold feet or sweating over entering into a contract, contact us. We will be able to walk you through the process and make sure that you’ve got all the conditions and timeframes you need to protect you by ensuring that you make all enquiries in relation to your purchase.