Do I need a finance clause in a property sale & purchase agreement, and for how long?

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Posted 2 years ago by Pope & Co. Mortgages

Not having a finance clause in your sale and purchase agreement can potentially be disastrous, but how long it should be depends on several factors.

Putting a finance clause in your offer allows time for your lending to be confirmed before your property purchase goes unconditional. It can account for bank turn around times, which can sometimes be really slow, especially during periods where there are public holidays or school holidays. It can also allow extra time for when you want to put in an urgent offer on a house and you haven't started the paperwork for your mortgage application yet.

For complex scenarios where a valuation may be required and supporting information hasn't been submitted, a minimum 10-day clause may be needed, particularly if you are a first-home buyer and you have a low deposit. If you want to make an offer on a property ASAP but haven't started a mortgage application yet, then you should allow for at least a 10-day finance clause if possible.

If you are a low-deposit buyer and you have already been pre-approved for your mortgage, then a 5-day clause may be adequate for allowing a registered valuation to be done. Banks usually require a registered valuation when a deposit is less than 20%. The bank also needs time to check the property disclosures and the sale and purchase agreement.

In situations where you are pre-approved with a deposit of 20% or more, it may be possible to have a draft sale and purchase agreement and disclosures approved by a bank well in advance of an offer being made. That could avoid the need for a finance clause. This provides a much stronger offer, but it requires being prepared well ahead of any deadline or auction. Consult your mortgage broker early on as to the best approach for your situation.

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