What does subject to finance mean?

Buying property in Melbourne can feel like a fast paced chess match. Prices move quickly, homes can sell after a single open for inspection, and there is always pressure to sign on the dotted line before someone else snaps up "your" place. In that whirlwind, one small phrase in a Victorian contract of sale carries outsized power: "subject to finance".

Below we unpack what "subject to finance" means, how it works in Victoria, the risks of leaving it out, and practical tips for both buyers and sellers. Whether you are a first home buyer in Footscray, a downsizer in Doncaster, or an investor eyeing a Carlton terrace, understanding this clause could save you tens of thousands of dollars.

What Does "Subject to Finance" Actually Mean?

A subject to finance clause makes the entire contract of sale conditional on the buyer securing a home loan of a stated amount from a nominated lender by a set approval date. If the loan is refused, the purchaser may cancel the contract and get their deposit back, provided they have complied with the steps set out in the contract.

Think of it as a safety net: it lets you commit to a property before your bank formally commits to lending the money. Lenders will not issue unconditional (formal) approval until they have valued the specific property and re-checked your finances, something that only happens after you sign. The clause bridges that gap.

Where Does the Finance Clause Sit in a Victorian Contract?

In Victoria the tick box for finance appears on the standard Contract of Sale of Real Estate prescribed under the Estate Agents (Contracts) Regulations 2008. When that box is ticked and the loan details, lender name and approval date are filled in, General Condition 20 springs into life and sets out the buyer's rights and obligations.

Key Finance Clause Components

• Amount – the loan needed (for example "$650,000")
• Financier – your intended bank
• Approval date – often 14 days after signing
• Notice period – buyers commonly have two business days after the approval date to notify the vendor if finance is declined

The Buyer's Legal Obligations Under Finance Clauses

Signing subject to finance is not a free "get out of jail card". Victorian case law and the contract require purchasers to:

• Apply immediately – lodge a complete loan application promptly
• Do everything reasonably necessary – supply documents, arrange the valuation, chase the assessor
• Act in good faith – do not seek very different loan terms to those written in the clause
• Notify promptly – serve written notice with evidence if finance is refused

Fail these steps and the clause's protection may evaporate.

What Happens if Finance is Declined?

If the lender refuses the loan and you have met your obligations, you may terminate the contract, and the deposit held in trust must be refunded in full.

Critical timing: Give the cancellation notice within the two business day window or the contract becomes unconditional.

Can You Get a Finance Clause Extension?

Yes, but the vendor must agree. Make sure any extension also resets the notice window; otherwise you might gain time for approval but still face the original notice deadline – a trap that has led to litigation.

Risks of Waiving Finance Protection in Melbourne

Waiving the clause can make an offer look stronger, yet the fallout is severe if the loan falls through:

• Loss of deposit – generally ten per cent of the price
• Vendor's damages – you may be sued for any resale shortfall
• Forced settlement – courts can order you to settle even without a loan

Pre-approval helps but is no guarantee. Valuations can fall short, or policy can tighten between pre-approval and formal approval.

How to Stay Competitive While Staying Protected

• Shorten the approval date – if your lender is quick, ten days reassures vendors
• Increase the deposit – offering five per cent up front offsets perceived risk
• Show pre-approval evidence – signals finance is likely
• Offer a slightly higher price – but stay within borrowing limits

Remember: at auction in Victoria the contract is unconditional, so private sale is the place for finance clauses.

Advice for Property Sellers in Melbourne

• Check the loan amount and lender named in the clause
• Ask the agent to see the buyer's pre-approval letter
• Negotiate a shorter finance period if time matters
• Clarify that any extension keeps all other terms unchanged

These steps reduce the risk of late collapse.

Recent Melbourne Property Market Trends (2025)

Approval timelines: Major bank unconditional approvals averaged nine calendar days in early 2025, down from twelve a year earlier.

Valuation shortfalls: CoreLogic's April 2025 data show Melbourne dwelling values 1.4 per cent lower than six months ago, raising the risk of low valuations.

Together these trends make a solid finance clause more important than ever.

Frequently Asked Questions About Finance Clauses

Is finance protection the same as the three-day cooling-off period?

No. The statutory cooling off under section 31 of the Sale of Land Act lasts only three business days and costs 0.2 per cent of the price. Finance clauses usually run 14–21 days and carry no penalty if used correctly.

Can I waive the clause once the bank says "yes"?

Yes  your conveyancer can declare the contract unconditional sooner.

What if only part of my requested loan is approved?

Partial approval may still count as approval unless the clause specifies that exact amount. Seek advice before relying on a refusal letter that cites a different figure.

Practical Finance Clause Checklist for Melbourne Buyers

The Role of Your Melbourne Conveyancer

A good Melbourne conveyancer will draft precise clauses, diary critical dates, negotiate any extensions and, if necessary, terminate the contract correctly. Their expertise turns fine print into practical protection.

Case Study: How One Melbourne Buyer Avoided a $90,000 Disaster

Earlier this year Ella and Mo, a young couple from Coburg, signed a $900,000 contract for a two-bedroom home in Preston. They included a 15-day subject-to-finance clause with NAB as the named lender and a $720,000 loan amount. During the valuation NAB assessed the property at only $865,000, meaning the bank would lend just $692,000. The couple could not cover the $28,000 shortfall.

Because they had:

• applied for the loan the very next morning,
• provided every document requested, and
• delivered NAB's formal decline letter to their conveyancer on Day 14,

their solicitor was able to serve a termination notice on Day 15, within the two-business-day window. The full ten per cent deposit was refunded five days later. Had they left out the clause, they would have lost the $90,000 deposit and faced a possible damages claim.

Five Ways to Improve Your Odds of Finance Approval

1. Keep your credit file clean – pay every bill on time for at least six months before applying
2. Limit buy now pay later limits – lenders count unused limits as potential debt
3. Avoid job changes – most banks want six months in the same role
4. Keep savings in one place – multiple transfers can look like "gifted" funds
5. Order your own valuation – some lenders allow an upfront desktop valuation giving you an early warning of any shortfall

Implement these habits while house hunting and you reduce the chance of an eleventh hour loan refusal.

Special Conditions and Custom Finance Clause Wording

Standard clauses are only a starting point. Your conveyancer can tailor wording to:

• allow withdrawal if the interest rate exceeds a nominated cap,
• nominate two lenders (for example, "Commonwealth Bank or ANZ") to widen your options, or
• tie the approval amount to a minimum loan to value ratio rather than a dollar figure.

Customisation can provide flexibility without weakening protection, especially for self-employed buyers or those using specialist lenders.

The Bottom Line for Melbourne Property Buyers

Property contracts are long and jargon heavy, yet the most important protection can be just three typed lines under the heading Finance. Spending a little extra time and a few hundred dollars on professional advice is the cheapest insurance policy you can buy when entering a six or seven figure transaction.

Conclusion and Next Steps

A subject to finance clause guards against the biggest risk in a property purchase not having the money on settlement day. Used wisely, it protects buyers without killing bargaining power.

For personalised advice and a free Section 32 contract review, contact Pearson Chambers Conveyancing today.

Phone: 03 9969 2405
Email: contact@pearsonchambers.com.au