You have found your dream home and need to get finance sorted. Chances you may need a subject to finance condition in your contract.
Your mortgage broker What If We Finance will now explain what subject to finance means.
What does subject to finance mean?
Subject to finance when included in a contract to buy a home tells the other party you legally agree to buy the house so long as you receive formal approval.
Subject to finance is often used when you do not have a home loan pre-approval . A pre-approval serves as proof that a lender is prepared to lender to you up to a given amount and provided any conditions imposed by the lender are satisfied.
When and why should I use subject to finance?
Do I need to specify subject to finance in my contract?
Offers to buy a home are typically made in writing. As part of the offer, you will need to specify the special conditions that apply. Special conditions can include subject to finance, subject to building inspection on even any other reasonable terms.
If you do not specify subject to finance, then the offer is affectively unconditional. This means if your home loan finance is declined, and you cannot secure alternative forms of finance you will lose your deposit and may be subject to legal action for damages.
Bank valuations and the risk they pose.
As part of the finance approval process the bank will value the property. Subject to finance clause also protects you with the bank valuation is below your purchase price. For example, if you buy a house for $400,000 in the bank valued at 380,000 you may need to Lenders Mortgage Insurance or have to contribute additional cash to make up the difference.
If you can obtain Lenders Mortgage Insurance or have additional funds your loan may be declined and once again subject to finance acts as insurance.
Subject to finance and the contract
When drafting the contract to buy it is extremely important you obtain legal advice from your lawyer or conveyancer. You need to ensure that the subject to finance clause in the contract is worded in such a way to protect you should your loan be decline.
Typically, subject to finance clause will specify the institution, loan amount and you should also allow adequate time to obtain finance. Your mortgage broker can advise you on what is adequate time.
Are your ready to buy a home?
Mortgage Broker Melbourne, What If We Finance has been working with homebuyers since 2008 to help people by home. We run a specialised processed and educate you on what’s involved in buying a home.
Contact Melbourne’s Best Mortgage Broker What If We Finance today to find out more.