Subject to finance: What it means and why it matters

What is a ‘subject to finance’ clause?

It’s a contractual condition that makes your offer conditional on being approved for a home loan.

If finance is declined (or not approved) you may withdraw, but only if:

Special conditions can also be inserted to provide for a subject to finance clause on other terms (or amend the standard terms).

Why this protection matters for purchasers

The standard Victorian finance clause gives you an exit strategy if your lender says no or doesn't approve you in time, but the general condition that is relied upon in Victoria is only effective if you:

If you delay applying or fail to give notice, you could lose your right to withdraw and your deposit.

It is important that you seek legal advice on the exact wording used in your contract to ensure you are protected.

Vendors: know where your sale stands

Until finance is approved or waived, the contract is conditional.

During this time: 

If the buyer validly withdraws under the clause, their deposit is refunded in full. Sellers can request evidence that the buyer genuinely attempted to obtain finance.

If they fail to act within the terms, they may lose their deposit or face breach of contract.

Q: Can I withdraw under finance if I just change my mind?
A: No. It required good faith actions. You must show that finance was declined or not approved on the appropriate terms and you took reasonable steps to secure it.

Q: What happens if I forget to notify that finance was declined?
A: You may be deemed to have waived the condition and must proceed or risk losing your deposit.

Q: Can the seller request proof that I was rejected?
A: Yes. Sellers are entitled to ask for evidence that you genuinely applied for finance and were declined or not-approved within the conditions of the contract.

Q: What if I need more time for approval?
A: Request an extension before the deadline. The seller can accept or refuse. If refused, and you still can’t obtain finance, you may be able to withdraw (provided you applied promptly and complied with all terms). Make sure you are not in default when negotiating.

The subject to finance clause is a critical shield available to savvy buyers, but it must be used correctly to be effective.

For buyers, this means applying quickly and notifying on time.

For sellers, it’s about knowing when the contract becomes unconditional and what to do if a buyer seeks to exit.

Need help reviewing or negotiating a finance clause? Let’s make sure you’re fully protected before signing.

The information is general in nature and does not constitute legal advice. If you are buying or selling, please contact us to request legal advice.