In short: A subject-to-finance clause lets you end a Victorian contract of sale and get your full deposit back if your named lender does not approve your loan by the approval date. You must have genuinely tried to obtain the loan, must not be in default, and must give the vendor written notice by the deadline. Auction purchases cannot be made subject to finance.
Most private-sale contracts in Melbourne are signed with a finance condition, and most disputes about failed purchases come down to how that condition was filled in and whether the buyer acted in time. This page walks through the standard Victorian wording, how to complete it, and how to work with your broker so the condition does its job.
What the law says
There is no statute that gives you a finance condition. It exists only if it is written into the contract. The standard contract of sale published by the Law Institute of Victoria and the Real Estate Institute of Victoria includes a general condition, headed "Loan", that operates when the particulars of sale state the contract is subject to a loan.
In summary, the standard condition provides that:
- the contract is subject to the purchaser obtaining approval of a loan from the lender named in the particulars, for the amount named, by the approval date;
- the purchaser may end the contract if the loan is not approved by the approval date, provided the purchaser has done everything reasonably required to obtain approval, is not in default, and serves written notice ending the contract on the vendor within the time the condition allows (the current standard wording gives a short window of 2 clear business days after the approval date, but treat the approval date itself as your deadline and confirm the wording in your contract with your conveyancer);
- all money paid must then be immediately refunded.
Because the condition is contractual, vendors can and do amend it with special conditions. Some require you to give evidence of the lender's decline, some remove the ability to extend, and some shorten the approval period. Read the special conditions as carefully as the general condition.
The Sale of Land Act 1962 (Vic) separately gives you a 3 business day cooling-off period on private sales. The two protections run alongside each other and cover different risks.
How to fill in the finance condition
The particulars of sale ask for three things. Each one matters.
- Lender. Name the lender you actually intend to use, or use a broad description such as "any lender chosen by the purchaser" if the vendor will accept it. Naming one bank and then being declined by a different bank you approached instead can undermine your right to end the contract.
- Loan amount. State the amount you genuinely need. If you write $500,000 and the lender approves $500,000 but you needed $520,000 to settle, the condition is satisfied and you are bound.
- Approval date. This is the deadline. Fourteen days is common but often too short in a busy market. Twenty-one days is safer, particularly for construction, self-employed or visa-holder applications. The vendor's agent will push for a short period; your broker can tell you what is realistic.
How the clause works step by step
- Sign with the condition completed. Check the "subject to loan" box is ticked and the three fields are filled.
- Lodge the full application immediately. A finance clause is not a pause button. Lenders take days to assess, and the valuation has to be ordered and returned.
- Respond to every lender request the same day. Payslips, statements, ID and explanations of transactions. Delay on your side can be argued to be a failure to take reasonable steps.
- Track the approval date. If the lender is close but not there, ask the vendor for an extension in writing before the date, not after.
- If declined, serve notice. Your conveyancer sends written notice ending the contract, usually attaching the lender's decline letter, and requests the deposit refund.
- If approved, the contract becomes unconditional on that point, and you move towards settlement.
Key dates and consequences
| Event | Standard position | Practical tip |
|---|---|---|
| Contract signed | Cooling-off starts (3 clear business days) | Lodge loan application the same day |
| Lender requests documents | You must respond promptly | Have a documents checklist ready |
| Valuation returned | Shortfall may reduce loan amount | Ask broker about alternative lenders early |
| Approval date | Deadline to end contract if not approved | Request an extension before, not after |
| Notice served in time | Deposit refunded in full | Keep proof of delivery |
| Approval date passes with no notice | Contract becomes unconditional | Deposit and damages at risk |
Worked example
You sign a contract for a $580,000 house in Wollert on 1 September with a 10% deposit of $58,000, finance condition naming your lender, a loan amount of $522,000, and an approval date of 22 September.
Your broker lodges the application on 2 September. The valuation comes back at $560,000 on 12 September, and the lender will only lend 90% of the lower figure, which is $504,000. You are $18,000 short.
Because you still have 10 days, your broker approaches a second lender whose valuer values the property at $580,000, and that lender issues formal approval for $522,000 on 19 September. The condition is satisfied and you proceed. Had the second lender also fallen short, your conveyancer would have served notice by 22 September and you would have recovered the full $58,000.
What it means for your home loan
- Pre-approval first. A pre-approval shortens the time to formal approval and gives you confidence in the loan amount you write into the contract.
- Valuation risk is the main risk. Most declines after pre-approval are valuation shortfalls, not credit issues. A broker with multiple lenders on panel can order a second valuation elsewhere.
- Loan amount and LMI. If you are borrowing above 80% LVR, lenders mortgage insurance has its own approval, and the finance condition should reflect the full loan including any capitalised LMI.
- Guarantor and scheme loans need longer. Guarantor home loans and First Home Guarantee applications involve extra checks, so ask for a longer approval period.
- Construction and house-and-land contracts often have finance conditions on both the land contract and the build contract. Align the dates.
GNT Finance manages the finance timeline for you and keeps your conveyancer informed, so notice can be served in time if a lender says no. Our home-loan service is at no cost to you in most cases.
Common mistakes
- Leaving the lender field blank or vague and then being unable to prove that lender declined you.
- Understating the loan amount to look stronger, then finding you can't settle.
- Letting the approval date slide in the belief that the vendor "won't mind". Silence after the date makes the contract unconditional.
- Assuming a pre-approval letter satisfies the condition. Only formal, unconditional approval does.
- Trying to use the clause to exit for another reason when finance was actually available. That is a breach and the vendor can keep the deposit.
- Bidding at auction with a finance condition in mind. Auction contracts are unconditional, full stop.
Frequently asked questions
What does subject to finance mean in a contract of sale?
It means the contract only becomes binding on you if your named lender approves the loan amount stated in the contract by the approval date. If the loan is not approved by that date and you have made a genuine effort, you can end the contract by written notice and recover your deposit in full. If approval is given, the condition falls away and you must settle.
Can I pull out of a contract if my finance is not approved?
Yes, provided the contract contains a finance condition, the approval date hasn't passed, you took reasonable steps to obtain the loan, you are not otherwise in default, and you serve written notice in the way the condition requires. If any of those elements is missing, ending the contract may be treated as a breach and the vendor may keep your deposit.
How long should a subject to finance period be?
The standard is 14 days, but 21 days gives your lender time for valuation and formal assessment, particularly if you are self-employed, on a visa, using a guarantor or applying under a government scheme. If the vendor insists on 14 days, ask your broker whether it is realistic before you sign.
Does pre-approval count as finance approval?
No. Pre-approval is an indication that a lender is likely to lend, subject to a valuation and a full assessment. The finance condition is satisfied only by the lender's formal loan approval. Never let the approval date pass on the strength of a pre-approval letter alone.
Can you buy at auction subject to finance in Victoria?
No. Auction sales in Victoria are unconditional, and there is no cooling-off period either. If you need finance, have your loan pre-approved, have the property valued if possible, and know your ceiling before you bid. Read our guide to buying at auction in Victoria for the full checklist.
Talk to GNT Finance
Before you write a lender, amount and date into a contract, get them from someone who knows how long each lender is really taking. GNT Finance will pre-approve you, set a realistic approval date and chase the lender so you are never caught by the deadline. Book a free consultation or call 0426 403 703.
This page is general information only and not legal, tax or financial advice. Laws change — confirm current rules with the State Revenue Office, the ATO or a licensed professional.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.