What Does ‘Subject to Finance’ Mean When Buying A Home

If you’ve found a dream home and are considering signing a sale and purchase agreement, chances are you’ve heard of the term subject to finance. Canstar explores the term and what it means for you?

When buying a home, it’s always a good idea to get your finances in place before you buy. Not only will it give you a clear idea of your price range, it will give you an advantage over home-buying rivals who have yet to get their finances in place.

However, even if you have your finances arranged, the sales and purchase agreement you sign will still contain a subject to finance clause. So what does the clause mean and what are its implications? Canstar explains:

What does subject to finance mean?

What is home loan serviceability

When a buyer first makes an offer on a property, they are required to make a legal offer and sign a sale and purchase agreement. The most common sale and purchase agreement template used in New Zealand contains two finance conditions:

1) Makes the agreement “conditional upon the purchaser arranging finance” by a specific date.

2) States that the purchaser must provide a “satisfactory explanation”, along with “supporting evidence” if the purchaser pulls out of the agreement due to a lack of finance.

The second clause was added in November 2019. Its inclusion is designed to stop unscrupulous prospective home buyers lying about their finances in order to cancel the agreement for other reasons.

Why do I need ‘subject to finance’ in my home offer?

When a buyer makes an offer, it can be subject to one or more conditions. Common conditions include:

  • The home loan being approved (or subject to finance)
  • A Land Information Memorandum (LIM)
  • The building passing all its inspections, which could include a builder’s report, an engineer’s or surveyor’s report, or a pest inspection
  • A toxicology report, if you think the property’s been used as a meth lab
  • An OIA consent (involved with the purchase of sensitive land by an overseas person)
  • A valuation report
  • A title search
  • The sale of another home

All these conditions are designed to protect those involved in the sale. They give you time to do thorough due diligence, so you can be sure that your dream home isn’t the stuff of future nightmares.

Do I need ‘subject to finance’ in my contract?

Yes.  If all the other conditions of the sale and purchase agreement are met and then, suddenly, at the last minute, your finances fall through and you can’t continue with the purchase, you could face serious consequences.

If you can’t go through with the sale at all – for example, because of a seismic shift in your financial circumstances – you could lose your deposit. Or, if you are able to hastily arrange another home loan, you might have to settle for a non-bank lender and agree to a higher interest rate and greater fees.

Why you should seek professional help

When making any major financial decisions, it’s always advisable to consult the experts. When buying and selling homes, always use the services of a professional lawyer or conveyancer to discuss the contract with you and your real estate agent.

And when looking for the best home loan, refer to Canstar’s home loan comparison tables. Our expert panel rates and compares NZ mortgage products and awards the best our exclusive star ratings. To start your research into your next home loan, and to check the best deals on the market, just click on the button below.

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