Your finance clause is a safety net. Here’s how to keep it from failing

5pm. That's the time that matters.

Not 5:15pm. Not "first thing tomorrow, the bank said it's basically done". 5pm on the finance date written in your contract.

Most buyers in Queensland sign a contract 'subject to finance'. It's one of the most useful protections you have. But it only works if you understand what it actually requires. A surprising number of people don't until something goes wrong.

George Sourris from Empire Legal has written an excellent explainer on how the finance clause works in the standard REIQ contract. You can read George's article here. I want to add the broker's view, because the finance clause is where the legal side and the lending side meet.

How the clause works (in plain English)

According to George, the finance clause sits in Standard Term 3 of the REIQ contracts. It has three parts that all need to be filled in:

1. The finance amount. Usually written as "sufficient to complete".
2. The financier. Usually "buyer's choice", which means you can use any lender.
3. The finance date. The number of days you have. Fourteen is typical, but seven and 21 are common too.

Here's the trap George highlights: if any of the three parts is left blank, the contract is not subject to finance at all.

Hot Tip: Before you sign, look at those three boxes yourself. It takes ten seconds and it's your deposit on the line.

Conditional approval is not finance approval

This is the part I see misunderstood most often.

A lot of buyers think that once the lender says 'yes, subject to valuation' they're approved. They're not. Conditional approval means the lender is happy so far but there are still boxes to tick. The valuation might come in short. The lender might want another document. The credit team might ask a question about your income.

George is clear on this: approval with conditions is not enough. You need to be confident the lender will actually provide the funds before you satisfy (or 'go unconditional' on) the finance clause. Because once you do, you generally can't get out of the contract just because the money doesn't turn up.

In a nutshell:

• Pre-approval tells you roughly what a lender might lend. It's a starting point.
• Conditional approval tells you the lender likes the application but still has conditions.
• Unconditional (formal) approval is the one you want before the finance date.

What happens at 5pm on the finance date

George sets out three paths:

• You have unconditional approval. You can satisfy the clause and move to settlement.
• The lender has said no, or hasn't given unconditional approval. You can terminate by written notice before 5pm and get your deposit back (provided you've taken reasonable steps to get finance).
• You do nothing. The contract doesn't end and the condition isn't treated as satisfied. The seller can then choose to terminate.

That last one is the quiet danger. A slow lender can cost you the property even though you did nothing 'wrong'.

Reasonable steps (and why it matters which lender you use)

You have to take reasonable steps to get finance. George mentions a case called Hauf v Miller where the contract named a specific lender (ING) and the buyer didn't apply to that lender. The court found the buyer hadn't acted reasonably and hadn't validly terminated.

That's one reason we suggest "buyer's choice" in the financier box rather than naming a specific bank. It keeps your options open if the first lender says no and a second lender might say yes.

Note: Whether you've taken 'reasonable steps' is a legal question. If you're thinking about terminating, talk to your solicitor or conveyancer before the deadline, not after.

What your broker should be doing before the finance date

If you're working with us, here's what you should expect:

• An honest view of how long your lender is likely to take, before you agree to a finance period
• The valuation ordered as early as possible (it's the most common cause of delays)
• A clear update a few days before the finance date, not on the morning of it
• If approval is close but not done, a heads-up early enough for your solicitor to ask the seller for a written extension (George stresses this needs to happen before the deadline)

If you'd like a shorter finance period to make your offer stronger, our 7-day finance terms are worth a look. They work because of the preparation done before you sign (and approval still depends on the lender).

The inconvenient truth

Sometimes the right advice is to ask for a longer finance period, not a shorter one. If your income is complicated, you're buying a unit in a tower or you need a specialist lender, 14 days may be tight. A slightly weaker-looking offer is better than a contract you can't safely satisfy.

If you'd like help working out a realistic finance period before you make an offer, call us on (07) 3194 0888 or book a time online.

Thanks to George Sourris and the team at Empire Legal for permission to reference their work. Time Home Loans doesn't pay or receive referral fees for introductions to Empire Legal.

This article is general information only and does not take into account your objectives, financial situation or needs. It is not legal advice. Lending criteria, fees and charges apply.