You have finally found that perfect investment property or decided on your new home and you are ready to make a carefully considered offer.  The first thing you need to think about as a buyer of residential property is whether you will need finance to acquire the new purchase.  If you know that you will need some sort of finance or a loan to obtain a property, the finance arrangement will be included in the Contract of Sale. Buyers of residential properties often misunderstand standard clauses and conditions in property Contracts, particularly the finance clause, which can often result in a loss of part of the deposit paid to the seller. 

If a standard residential contract is signed subject to 'finance approval,' the buyer must make all efforts to obtain that approval for the loan. The amount of finance required, the lender and the agreed date that approval must be obtained by, is stated in the Contract. If the buyer fails to notify the seller by the agreed date that they have obtained finance approval, the seller may terminate the Contract and place the property back on the market. 

Another mistake that often occurs is when a buyer believes they already have finance approved by a lender.  Having made this assumption, the buyer proceeds to make an offer of purchase without that offer being subject to finance. In other words, the buyer is making a 'cash' offer.  Often the buyer hasn’t understood that the bank has given them “pre-approval” or “pre-approval in principle” which means the loan is not approved until the bank can confirm all the information you have given to them and have obtained information about the potential purchase. The bank’s lending requirements may also include a property valuation or mortgage insurance.   

Mistakes also occur when a Contract of Sale has been prepared incorrectly, and important details have been omitted from the finance clause.  It is important that prior to signing the Contract of Sale that you read through the Contract thoroughly and make sure you understand terms of the agreement, in particular the clauses which must be adhered to or the Contract can be rescinded. Once the seller accepts your offer, you are legally bound to the Contract and it can be difficult, if not impossible, for the Contract to be amended. 

If the Contract of Sale has been prepared correctly to include a finance clause, this will allow the buyer to terminate the contract should the bank decline to finance the purchase.  This will also entitle the buyer to a refund of their deposit. You should obtain formal legal advice or instruct an experienced conveyancing company if you are considering signing a residential Contract of Sale. 


This article contains information of a general nature only and is not specific to your circumstances. This is not legal advice and should not be relied upon without independent legal or financial advice, specific to your circumstances. 

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