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Finance clause on contract

Discussion in 'Property Finance' started by JohnPropChat, 24th Sep, 2015.

  1. JohnPropChat

    JohnPropChat Well-Known Member

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    The finance clause, at least in WA asks for LVR borrowing. If I put 80% on the contract - can the vendor force me to get finance at a higher LVR than what's on the contract? Or from a different bank than what's on the contract? Is this different in other states?
     
  2. thatbum

    thatbum Well-Known Member

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    What does the clause say? I'm pretty sure its all in there.

    Its different in other states because they have different standard contracts.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If you can't get finance for 80%, it's pretty unlikely you'll be able to get finance for 90%.

    If you say in the clause 80%, and can get finance @ 80%, it's clause satisfied so if you say 80% but actually want finance @ 90% that would be rather foolish.
     
  4. JohnPropChat

    JohnPropChat Well-Known Member

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    How is that? There's always LMI territory. If I had a 20% deposit and there was an unexpected need to use some of it then I won't get finance at 80% but very likely can get it at higher LVRs, only to a certain extent of course.
     
  5. Rixter

    Rixter Well-Known Member

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    Another issue I'd like to address in relation to finance. is one which leaves most people wide open to the vendor pushing a sale through even though finance may have fallen over.

    That wording is in the clause 'subject to and conditional to finance'. By doing so, it leaves you wide open for the vendor to find finance for you even though your own finance may have fallen through.

    Although the likelihood of it happening is minimal, the potential for it to become a problem is very real - the vendor just hasn't pushed the issue.

    A better wording to use is 'subject to and conditional upon finance from an institution satisfactory to the purchaser.

    Hope this provides some food for thought.
     
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  6. thatbum

    thatbum Well-Known Member

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    This doesn't really apply for WA and the standard REIWA contract though, since there is actually an extensive finance clause that you tick the box for.
     
  7. JohnPropChat

    JohnPropChat Well-Known Member

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    Looks like the finance clause can be amended;

    From here:
    An alternative for buyers is to amend the finance condition on the O & A, either themselves or with the assistance of their professional adviser prior to making the O & A, to suit their own particular finance requirements.
     
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  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I meant that if you got knocked back at 80% the odds of getting approved at higher LVR would be slim.
    You need to show that you've attempted to get finance before the you can get out of the clause.

    In your example, if you get approval for finance at 80% but decide to use some of your funds to complete to buy a car for example, you will still have to complete the sale despite not having enough funds due to having your loan approved at 80% as per finance clause.
    So while the seller can't 'force' you, you kind of are forced if you want to avoid penalties.

    If you spend the funds to complete before applying, no application would get submitted as you can't show an ability to settle, so I'm not sure of the legal implications there - @thatbum? My thought is you'll be up for penalties as no attempt to get finance has been made, which would be a breach of the contract.
    That is prior to signing the offer though, not after.
     
    Last edited: 24th Sep, 2015
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  9. JohnPropChat

    JohnPropChat Well-Known Member

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    My example wasn't probably very clear. Let say, I have a 20% deposit so I put in an offer with 80% clause, vendor accepts it, then I had to use some of that deposit for whatever. At that point in time there a few paths I can take 1) Apply for a 80% finance - bank will knock me down cause of not enough deposit and I inform the vendor that the deal is off 2) I am still keen on the property so I apply for a higher LVR loan which the bank may approve and I go ahead with the contract.

    In scenario 1, from what I understand, the failed 80% finance is a good enough reason to cancel the contract and the vendor can't pursue it further.

    My IP is on the market at the moment, if I happened to get two offers and all things being equal except for the %LVR quoted in the finance clause - I would be inclined to go with the low LVR one (assumption being he has more deposit and is easier to get finance) but is that the right way to go about it? Could the buyer have just said 80% to make it more appealing to me as a vendor? I assume I won't have much recourse then.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The terms of any contract are up to negotiation - even these standard contracts.
     
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