Unconditional Contract & Subject to Finance

Hi all,

I am going to ask a newbie silly question.

Does unconditional offer means I have to pay with cash?

What does "Subject to Finance" clause mean? Do I need to put this clause even if I've got the formal pre-approval letter from the bank?

Your comments will be greatly appreciated. Many thanks,

Ben

 

I suggest you look up some step by step guides to purchasing a house. Consumer.vic has this:

Buying property

 

An unconditional offer means you're making an offer without any conditions. You're definitely buying the property and if you can't you'll loose a deposit and possibly more.

"Subject to finance", means that you're making an offer, but you aren't yet certain of the finance, so you've got a way out of the contract in the event you can't actually get the finance.

Needless to say, an unconditional offer is stronger and will probably be taken more seriously than one with a finance clause.

 

Hi Peter, thank you for the reply, I guess I should be more specific

How reliable is the formal pre-approval letter? can I rely on it to make an unconditional offer?

What if the bank's valuation below the price I have agreed with vendor?

Does it mean I need to dip more into my own pocket and what if I have no money left to spend and stuck with this unconditional thing?

Regards,

Ben

 

It depends on the preapproval conditions and amount you’re borrowing.

If the only condition is a satisfactory valuation and your borrowing 80% or less then you shouldn’t run into any issues.

Cheers

Jamie

 

A pre-approval letter isn't 100% reliable, nothing ever is. It is as good as it gets though.

People always seem to worry about the valuation. In my experience that's rarely an issue and usually fairly easy to deal with if there actually is a problem.

As a mortgage broker I always try to have a backup plan in the event that something does go wrong, but it's rarely needed once a pre-approval is issued and I've never needed an alternative to the backup plan.

 

Anything OTP would be considered high risk. Yes, the valuation is a higher risk. Lender policy itself is probably an equal risk.

There's plenty of scenarios I can come up with where a lender would issue a pre-approval, then when you actually purchase they would refuse to honour that pre-approval based on a particular OTP apartment - irrespective of the valuation result.

If you're buying off the plan, or in high density inner city apartments, all bets are off.

 

If you have to ask this question your not ready to make any sort of binding offer or signing anything.

If you have an approval, your next step is to get a helpful solicitor and have them look at any contract on any place your are seriously considering.

Depending on state, your solicitor will also need to know of any conditions you may want, they should advise you if they are even half good at the job.

 

Not at all reliable, especially in the recent climate, a lender can do anything including refusing any type of loan.

 

thanks @dabbler so what will happen if I put an unconditional offer and the bank said hang on mate no!? Does it mean I need to put 'subject to finance' to cover myself although it won't be appealing for the Vendor and less chance I can do a bargain offer?

 

An unconditional offer, if accepted, means you have to proceed with the contract or risk penalties, possibly severe.

Subject to finance is really very common and not necessarily a turn off to a vendor. Subject to the sale of another property would be much less attractive.

Never offer unconditional unless you have cash or are very sure of your ability to have finance approved.
Marg

 

What it means is what I wrote, you need advice from solicitor who can read the contract BEFORE you do anything, apart from look at the place and find out what they actually want for it possibly.

If you offer unconditional and sign contract, then your problem to pay up by due date or lose deposit and possibly be up for further costs.

 

What do you want to crack your neck with no conditions for ? The vendor is offering you a pile of paperwork loaded with conditions ?

Also a verbal offer and agents talk mean nothing, signed contracts with deposit mean something.

 

PS there is no way to learn everything and know the subtle things required to purchase property in 5 mins or 5 days, and without all or most of many details, it is hard to know what to do, a good solicitor will sit with you and advise you and look at the many aspects and explain the unique parts to that one place, these change with every property, even though the contract may look the same, they are not.

 

As is NSW, and probably everywhere.

It boggles my mind at time how blase people can be about contracts that can really bring you unstuck, even when you have knowledge and do proper DD. I have seen people buy at auction with only having walked through mins earlier and paying top dollar, and also ones not even knowing what strata is etc etc This is how agents were able to push many people in Syd, it becomes a frenzy of fools at times.

 

exactly, I know someone as you described, bought at auction without checking the contract, and paid twice the price what the Vendor paid in previous year (Vendor did bit reno). Thank you for the insights.

 

The OP is asking prior to doing.
Its a good first step.

Your Conveyancing agent and or lawyers will not help if Bank renags on pre approval.

In Sydney where so much stock has been auctions over a few years. You are at the mercy of the bank.

I have been very lucky many propertyies later never had an Issue with Bank.