A subject to finance clause tells the vendor (property seller) that you legally agree to the purchase on the condition that you receive formal home loan approval from your bank.
It protects you from losing your deposit or being sued for damages by the vendor should your loan be declined. However, there are slight differences between each state.
Do all sales contracts come with a subject to finance clause?
In most states, you will need to request that a finance clause be included in the contract of sale.
There will typically be an entire page dedicated to the finance clause.
Learn more about what should be included in a finance clause.
Cooling off period
A cooling off period after exchanging contracts and paying your deposit is required under Section 66X of the Conveyancing Act 1919 (NSW).
This allows you to consider your purchase, undertake any property title searches, order building and pest inspections and formally settle your home loan.
Normal term: 5-day cooling off period
Cooling off waiver: Some vendors (the property seller) may ask you to provide an s66W, waiving the cooling period and making the contract binding.
You’re legally waiving your right to the 5-day cooling off period so read here for more crucial information.
Cooling off extension: Yes, by mutual agreement.
When cooling off doesn’t apply: Other than providing an s66W certificate, you waive your right to a cooling off period when buying:
- At auction, or where the contract is made on the same day as the property passed in at auction. Have a read of our guide on negotiating at auction.
- A commercial or industrial property, or any property that is over 2.5 hectares.
Standard holding deposit: 0.25% payable when you sign the contract. You will lose this if you’re unable to get approved for finance within the agreed timeframe but your conveyancer may be able to negotiate this amount with the vendor.
Standard deposit: 10% payable when the cooling off period ends.
For the ultimate property purchasing guide, our home buying process page will take you through every step in detail.
Please call us on 1300 889 743 or fill in our online enquiry form to speak with a mortgage broker to find out if you qualify for a home loan.
Yes, you can negotiate a finance clause with the vendor.
However, sellers in the ACT will hold off exchanging contracts until your finance has been approved rather than proceeding with a subject to finance clause.
The finance clause deadline will typically be 7 days because of 30-day contract periods in the ACT.
In most cases, the clause acts to make the contract conditional (grant the right to rescind the contract if finance is not approved) but it may be that the settlement is conditional on finance approval.
ACT cooling off period
Normal term: 5-day cooling off period.
Cooling off waiver: Yes, some vendors (the property seller) may ask you to sign a certificate under Section 17 of the Civil Law (Sale of Residential Property) Act 2003.
Cooling off period extension: The cooling off period may be extended by a provision in the contract, or by the vendor in writing before the end of the cooling off period.
When cooling off doesn’t apply:
- The property is sold by tender.
- The property was bought at auction or contracts were exchanged on the same day that the property was offered for sale by auction, but passed in, and the buyer was recorded as the bidder.
- You’re buying a commercial or industrial property.
- The property is more than 20 hectares in size and is used mostly for farming and agriculture.
- You and the vendor have previously signed a contract for the sale of the same land under similar terms.
To walk away from the sale, you must either give the vendor or the vendor’s agent written notice that you are ending the contract or give notice at the address of the vendor or their real estate agent.
Standard holding deposit: 0.25% payable when you sign the contract.
Standard deposit: Typically, it is 10% when the cooling off period ends or paid by instalments in the amount of 5% on exchange and 5% on the date of completion.
Subject to finance clause
Standard contracts in Queensland include a finance clause but it must be completed in full for the clause to take affect.
A 14-21 day finance clause is most common but a longer timeframe can be negotiated with the vendor.
Cooling off period
Normal term: 5-day cooling off period is required under Section 166 of the Property Occupations Act 2014
Cooling off waiver: Yes, you can waive your right to the cooling off period once the contracts have been exchanged.
Typically, the solicitor will send notification to the vendor to advise them that you elect to the waiver and then you would need to sign a declaration provided by their solicitor.
Can a cooling off period be extended: You cannot extend the cooling off period in Queensland with the only recourse being to extend on the basis of the finance condition.
When cooling off doesn’t apply: Cooling only applies to residential purchases not for the purposes of purchasing a commercial, industrial or agricultural property.
You also waive your right to cooling off when buying at auction.
Normal holding deposit: There is no minimum payable when you sign the contract but it could be as nominal as $1,000.
Normal deposit: 10% payable when the cooling off period ends.
Subject to finance clause
Yes, you can ask that this is included in the original offer with the loan amount and approval date.
In South Australia, they commonly use fixed dates rather than the number of days from the date of the signed contract.
This can be a problem if the offer is accepted but then the parties don’t get the contract signed and returned to the vendor on time.
Cooling off period
Normal term: 2 business day cooling off period.
Cooling off waiver: You can ask for a waiver form from your conveyancer, who will prepare and sign it on your behalf.
Cooling off period extension: It is not possible to extend the cooling off period.
You can try and ask the vendor’s conveyancer to hold off from serving Form 1 (cooling off period clause in SA) by a couple of days, but they are not under any legal obligation to do this and can serve it to you at any time.
When cooling off doesn’t apply: Cooling off doesn’t apply to properties bought at auction or purchased by an incorporated entity such as a company.
Standard holding deposit: There is no standard in SA but $5,000 to $10,000 is the generally accepted figure. This is payable the next business day after the cooling off period.
Request a pest and building inspection clause
Pest and building inspections generally aren’t included as a special condition in sales contracts in SA compared to other states.
Many real estate agents will encourage purchasers to have this done during the cooling off period, which is often not enough time.
If you’re buying an older home, negotiate with the vendor to include a building and pest inspection clause that stipulates that you won’t proceed with the sale unless the property meets certain agreed standards.
Alternatively, ask your conveyancer to recommend a building and pest inspector who works on a 24-48 hour turnaround.
Subject to finance clause
You can negotiate a 21-28 day finance clause, starting from the contract exchange.
The settlement date will then typically be set for 21-28 days from your home loan being formally approved.
Should your home loan application be declined with the lender you specified, your deposit will be refunded in full as long as you applied within the agreed timeframe.
Cooling off period
No cooling off period is specified in the Offer and Acceptance (O&A) for properties purchased in Western Australia.
Standard deposit: Unlike some other states, there is no minimum holding deposit required but it should be reflective of the offer you made on the property and agreed upon by you and the vendor.
What should be included in the subject to finance clause?
Here is a standard finance clause to give you an idea of what should be included.
Your conveyancer should have something similar so you can simply insert:
- The name of your lender (in some cases, you may be able to just write down “buyers’ choice”)
- The amount of the loan or “sufficient to complete the contract”.
- The approval date.
- The loan term and interest rate (this isn’t required by all agents).
In all finance clauses, there is an obligation to take all reasonable steps to obtain the finance (including providing relevant information, signing documents, making an applications etc.).
The clause will usually include a warranty that you have already done so such as a declaration of “application made but decision pending”.
Typically, you can negotiate a:
- 7-day finance clause.
- 14-day finance clause.
- 21-day finance clause, which is common when purchasing a property in a trust because trust loans take longer for the banks to approve.
It’s important to note that “days” refers to all calendar days, not just business days.
For example, a 21-day finance clause is for 21 days, not for a month and one day.
If you exchange contracts on Friday afternoon and then ask your bank for formal approval, your request won’t likely be checked until Monday so you will have lost two days.
You can also be in breach of the finance clause if you apply with a bank or lender that’s different to the one that you specified in the Contract of Sale.
Check out more golden tips for completing a finance clause and speak with your conveyancer to ensure that you’re able to meet your obligations.
Are properties purchased at auction subject to finance?
Yes! You can negotiate a subject to finance clause with the vendor.
This is different to a cooling off period, which you’re not entitled to when buying at auction.
The only way you can keep the majority of your deposit is if you sign a sales contract that includes this clause and you give the vendors notice that you were unable to obtain finance approval in writing by the agreed timeline.
How can a conveyancer help me?
Conveyancers are experts in subject to finance wording, helping you to reach settlement while also protecting your legal rights.
They can also help you save thousands because they stop you from losing your deposit should your home loan application be declined.
We have a list of recommended conveyancers for each state that will assist on your home buying journey.
They can assess the Contract of Sale for your state and negotiate changes that are in your best interests.
The difference between a cooling off period and a finance clause
A cooling off period allows you to pull out of the Contract of Sale and you don’t have to provide any reason or evidence even if you just change your mind.
Under the finance clause, you can only pull out only if your loan is not approved by your lender.
In this case, the vendor may request evidence that you were declined or that the loan was never approved.
If you exchange contracts without a finance clause and your formal approval falls through, you could lose your deposit and the vendor can sue you for damages.
How do both clauses work together in a sales contract?
Let’s say the sales contract included a 3-day cooling off period and 14-day subject to finance clause.
The clause deadline would take into account the cooling off period.
So if you were to exchange contract on 8 June, the cooling off period would expire by 5pm 11 June and the 14-day finance clause would expire on 22 June.
This is opposed to expiring on 25 June.
Should I sign an s66W certificate?
Some real estate agents will encourage you to sign an s66W certificate when exchanging contracts to give you an edge over other buyers. Tread carefully when considering signing the certificate.
It may be that the vendor wants a quick sale so you don’t find damage or other problems with the property and the land.
By waiving the cooling period, you open yourself up to losing 10% of the purchase price plus the difference between your offer and the sale price of the property if it were to be lower than your offer.
For example, if you made an offer of $600,000 for a property in NSW that eventually sold for $550,000, you could be sued for 10% of the purchase price ($60,000) plus $50,000 which amounts to around $110,000.
This is opposed to backing out of the sale during the standard cooling off period, which will only see you surrender the initial 0.25% deposit ($1,500) when signing the sales contract plus a penalty fee.
The difference is in the tens of thousands!
In most cases, conveyancers don’t recommend that their clients sign a x66W certificate but it can mean all the difference in a highly competitive market.
You should discuss the pros and cons of the certificate with your conveyancer, undertake thorough research of the local market and attend plenty of open homes before you make an offer on a property.
This will help you make an informed decision and avoid being taken for a ride on price.
When does the cooling off period actually start?
Remember this: your cooling off period doesn’t start until the real estate agent has issued you with the cooling off period statement or Form 1 statement.
Some agents prefer to wait until a contract has been signed before they order the property title search, after which, the Form 1 is prepared.
Some councils will do urgent searches and your conveyancer can have the government searches returned in 48 hours.
The problem is that some agents can take anywhere between 8-10 working days to come through.
If there has been a previous contract on the property, there may already be current searches on file and therefore the Form 1 may be served straight after the contract has been signed.
Some agents order the searches as soon as the property is listed so that they can serve the Form 1 document at the same time as the contract.
To minimise delays, it’s best practice to arrange a pest and building inspection as soon as you know your offer is accepted.
When subject to finance clauses go wrong
- Some people wrongly believe that a pre-approval means that their home loan has been approved yet there are many reasons you can be declined for formal approval, such as the property coming in under value or it doesn’t meet the lender’s policy due to location or its unique nature.
- Failure to submit an application and to provide adequate notice to the vendor before the deadline is considered a breach of contract.
- A letter from your mortgage broker advising that finance has been declined is generally not acceptable. It must be from the nominated lender.
- Failure to notify the vendor that you have been approved for your home loan before the deadline is another potential breach.
Golden tips for finance clauses
- Before signing a Contract of Sale, ensure that you have home loan pre-approval.
- If you don’t specify a lender in the finance clause, you must apply with a lender that’s acceptable as per the conditions of the contract, which typically means you can’t simply insert the name of your mortgage broker.
- If your lending institution has told you it will take 7–14 days for approval, don’t agree to 7 days in your contract. Similarly, don’t agree to 14 days because chances are your approval will come through on the afternoon of the fourteenth day. The better strategy is to agree to a 16, 18 or 21-day finance clause which gives you time to request a subject to finance extension if you need one.
- Property valuation delays due to tenants not allowing access, the bank requiring further paperwork for your mortgage application and lengthy backlogs with the assessment team are usually considered adequate reasons for needing a finance clause extension.
- Some sellers may be willing to negotiate an extension but others won’t if they believe they could quite easily sell the property to a ready buyer.
- Don’t be influenced by the vendor or their real estate agent to move the finance approval date back.
- Keep the pressure on the banks or, better yet, use a mortgage broker to fast-track your home loan application on your behalf.
We can guide you through the home buying process from pre-approval, to contract exchange, and all the way to settlement.
Call us on 1300 889 743 or fill in our online enquiry form to get started and avoid home buyer heartache.
Golden tips for vendors
If you’re selling your home and buying a new property, you should avoid committing to the new property until the sale of your property has become unconditional, that is, not subject to finance.
You will know when the sale becomes official because the buyer’s conveyancer confirms in writing that the contract is unconditional.
Find out if you qualify for a home loan
Call us on 1300 889 743 or complete our online enquiry form today and we can help you qualify for a home loan.
We have special relationships with the lenders on our panel which means we can often fast-track your application as long as your situation remains mostly unchanged between pre-approval and formal approval.
We can also order an upfront property valuation before you sign the Contract of Sale to give you some piece of mind that the property will be accepted.