Subject to finance loan amount

How important is the 'loan amount' section on the subject to finance condition? Wording is as follows:

This contract is subject to a loan being approved and the following details apply if the box is checked:
Lender: ________
Loan amount: no more than: ________

My conveyancer advised the loan amount must be exact on the contract. But since I am doing a loan with capitalised LMI, I don't know the exact LMI premium and therefore do not know the exact amount I will need to borrow. I do know the rough LMI premium if I was borrowing for a more expensive property, should I just use the LMI figure for the higher purchase price. Will this condition still be valid if the loan amount is less than the amount on the contract? E.g. if I put loan amount of 1 million on the form, but end up only applying for a loan of 980,000 which falls through, would the subject to finance condition still allow me to exit the contract?

Or do I need to get my broker to run the figures on the exact purchase price I am going to offer and tell me the loan amount?

 

very important.
Better to put the highest amount so that it will give you an option to back out - seek your own legal advice.

If you put the contract subject to a loan of $980,000 but you are approved for $979,999 then you have not met the condition of the contract.

 

In QLD you put "Sufficient to complete"
Whatever days your broker said finance would take.

 

That is too vague

 

Late to the party, however: some vendors/agents don't care about the loan amount in a 'subject to finance' approval clause. Sometimes they will accept it being left blank, or "sufficient to complete" being inserted. It's really for the vendor/agent to insist upon, otherwise better to leave it blank or vague, if possible.

 

Doesnt ‘no more than’ sound weird? Why isnt it ‘no less than’?

 

In lending terms the difference is probably achedemic. A lender who declines 92.8% LVR is also likely to decline 92.4% LVR. A reasonable guess will likely suffice for a finance clause. If in doubt, add a little extra to the figure on the finance clause.

Also many lenders 'decline letters' don't actually specify the loan amount and I've never had a conveyancer question it.

 

If the vendor is allowing a subject to finance clause, why don't you ask for it written to your benefit by being more broad? Eg. "Subject to finance by a suitable lender chosen by the purchaser"

Therefore, if you haven't found a "suitable lender" that you are happy with, you can still back out if you so choose.

 

Whats the definition of 'suitable lender'?

Rather than broad it might be best to narrow it down to a specific amount and specific lender - ideally set a high LVR to give you an option of not being able to get that amount.

 

I have had 2 calls this week from agents so I think the market has turned - at least in Sydney. Also received a few sms saying price guides for houses have dropped in value. A few months ago they wouldn't even return calls.

 

Yep - that's been my experience over the years too. They care more about the finance expiry date!

Cheers

Jamie

 

Thats a good point Jamie. Putting a time limit on a offer to indicate a finance limit gives some form of condition. Vendors must choose to reject in that case

 

for all QLD purchase where i had finance clause, "sufficient to complete" is what we put. My lawyer reviewed and ensured all terms were drafted/reviewed in my favor.

 

Ask your broker what figure to nominate.

I am sometimes asked what LVR is being borrowed when we're in the early stages of negotiating an offer. The favourable answer is 80% or less, as the selling agents know that'll be desktop valuation (rather than in person) and that thus valuation is very unlikely to throw a spanner in the loan application works. They also know that above 80%, there will be LMI which means the formal loan approval will take longer to come through.