Finance definition and what you need to know in relation to your Contract.
It is an often-misconstrued understanding that if you have pre-approval of finance, you will have the funds from your financier available at settlement.
Pre-approval does not constitute an unconditional offer from your Bank for finance. That is why it is important you understand the finance definition in your Contract, specifically in relation to pre-approval and unconditional finance.
The finance definition in your Contract is specific, in that it states “Unless all of Finance Amount, Financier and Finance Date are completed, this contract is not subject to finance and clause 3 does not apply”. So it is really important that your Contract is subject to you obtaining finance to complete your purchase.
You may have made enquiries directly with your bank or via a broker and been informed you have a pre-approval for finance. This simply means that you may qualify for finance. You still need to make a formal finance application and meet all the lending criteria before you are offered unconditional finance. The bank may also have other conditions in your finance approval before they will offer you unconditional finance such as:
- Finance is subject to a valuation on the property.
- Finance is subject to the refinance of another property.
- Finance is subject to you providing all financial information to support your application.
- Finance is subject to lenders mortgagee insurance.
Clause 3.1 of the standard Contract Terms details the finance definition “This contract is conditional on the buyer obtaining approval of a loan for the finance amount from the financer by the finance date on terms satisfactory to the buyer. The buyer must take all reasonable steps to obtain approval”.
It is therefore your responsibility to ensure that you are satisfied with the terms and conditions of your loan, that will include reviewing the conditions attached to the approval, the term of your loan, the finance amount, the interest rate, the fixed interest rate, break lock fees or the cost of the lenders mortgagee insurance.
Overall the finance definition in your Contract is a mechanism and safeguard to protect your interest as the Buyer of a property, and there is a big difference between pre-approval of finance and unconditional finance. Never have a contract prepared without the finance condition being completed unless you are sure you have the cash required to complete the purchase. Contact our conveyancing team today to assist with your purchase.
The information in this document represents general information and should not be relied on for your specific circumstances. If you require legal advice and assistance on the matters contained or associated in this document you should contact MMLaw. Please contact one of our Conveyancing Team – Renita, Georgia or Emma.