In short: If your finance is declined while the contract is still subject to finance, you can end it by written notice before the approval date and get your deposit back. If the contract is unconditional, you are bound: the vendor can serve a default notice, rescind, keep your deposit and sue for any loss on resale. Alternative lenders, guarantors and bridging finance are the usual rescue routes.
Finance failing after signing is the scenario every buyer fears, and it does happen: valuations come in low, a lender changes policy, a job changes, or a pre-approval turns out to have been less solid than it looked. What happens next depends entirely on the state of your contract. This page explains both scenarios under Victorian law and the practical ways out.
What the law says
A contract of sale in Victoria is governed by the general law of contract, the Sale of Land Act 1962 (Vic), and the terms of the contract itself. Three parts of that framework decide your position.
The finance condition. If your contract's particulars say it is subject to a loan, the standard general condition in the Law Institute of Victoria / REIV contract lets you end the contract when the named lender does not approve the stated amount by the approval date, as long as you took reasonable steps and give written notice in time. Read our full explanation of the subject-to-finance clause.
The cooling-off period. Section 31 of the Sale of Land Act gives private-sale buyers 3 clear business days to withdraw for any reason, losing only $100 or 0.2% of the price. It does not apply to auctions. See the cooling-off period page.
Default and rescission. Once the contract is unconditional, failure to settle is a breach. The standard contract requires the vendor to serve a default notice giving you 14 days to remedy the breach and pay the vendor's costs. If you don't, the vendor may end the contract, keep the deposit (deposits in Victoria are capped at 10% under the Act for off-the-plan sales and are conventionally 10% elsewhere), resell the property, and sue you for any shortfall between your contract price and the resale price, plus costs and penalty interest. Penalty interest under the standard contract is charged at the rate set under the Penalty Interest Rates Act 1983 (Vic) plus 2% a year for every day settlement is late.
Scenario one: the contract is still conditional
If you are inside the finance period, the fix is procedural:
- Get the lender's decline in writing.
- Tell your broker immediately. There may be time to place the loan elsewhere before the approval date.
- If a second lender can't approve in time, ask the vendor for a written extension before the date.
- If no extension is granted and no approval arrives, your conveyancer serves written notice ending the contract by the deadline.
- The deposit is refunded in full. The vendor has no claim against you.
The danger is silence. If the approval date passes without notice, the condition is spent and you are in scenario two.
Scenario two: the contract is unconditional
This is the position for auction purchases, contracts signed without a finance condition, and contracts where the finance date has passed. Your options, roughly in order of preference:
- Find another lender. Different lenders have different valuers, policies and appetites. A shortfall at one is not a shortfall everywhere.
- Reduce the loan needed. Extra savings, a gift from family, or selling an asset can close a valuation gap.
- Add a guarantor. A parent's guarantor home loan can eliminate an LVR or LMI problem within days at some lenders.
- Bridging or short-term finance. If you are waiting on another sale, a bridging loan can carry you through settlement.
- Negotiate a delayed settlement. Vendors generally prefer a late settlement with penalty interest over a rescission and resale. Get any extension in writing.
- Nominate a substitute purchaser. Most Victorian contracts allow you to nominate another person to take the transfer. If a family member can qualify for the loan, they may be able to complete the purchase. Duty consequences need checking with your conveyancer.
- Negotiate an exit. Sometimes a vendor will agree to release you for a payment less than the full deposit, especially if the market has risen and they can resell quickly.
What you stand to lose
| Stage | Exposure if you cannot settle |
|---|---|
| Within cooling-off (private sale) | $100 or 0.2% of price, whichever is greater |
| Within finance period, notice served properly | Nothing; deposit refunded |
| Finance date passed, before settlement | Deposit at risk; vendor may serve default notice |
| Default notice period (14 days) expires | Deposit forfeited; vendor may rescind |
| Vendor resells for less | Shortfall, resale costs, legal costs, penalty interest |
| Vendor resells for more | Deposit still forfeited in most cases |
Worked example
You buy a $650,000 house in Craigieburn at auction, paying a $65,000 deposit with a 60-day settlement. Your pre-approval was for $585,000. Two weeks later the lender's valuation lands at $610,000, and at 90% of valuation the maximum loan is $549,000. You are $36,000 short and have no finance condition.
Your broker takes the application to a second lender that accepts a full valuation of $650,000 and lends $585,000 with LMI. Approval takes 12 business days, still inside the settlement date. You settle on time and the only extra cost is the difference in LMI premium between the two lenders.
If no lender had come through, the realistic path would have been a family guarantee to reduce the loan-to-value ratio, or a negotiated late settlement while savings were topped up. Walking away would have cost the $65,000 deposit and exposed you to the vendor's losses on resale.
What it means for your home loan
- Pre-approval quality varies. Some pre-approvals are a credit-scored letter with no human assessment. Ask your broker how much scrutiny yours received. Our guide to home loan pre-approval explains the difference.
- Valuation is the weak link. Buying at auction in a rising or thin market is where shortfalls appear. A pre-purchase valuation ordered through your lender can remove the surprise.
- Change nothing between approval and settlement. New debt, a job change, or a large unexplained transaction can cause a lender to withdraw approval before settlement.
- Keep a buffer. Your upfront costs should include a contingency for a small valuation gap.
Gorakh Timilsina assessed hundreds of applications as a senior credit officer before founding GNT Finance, and that experience is exactly what's needed when a file has to be re-placed with a different lender in days rather than weeks. Our home-loan service is at no cost to you in most cases.
Common mistakes
- Waiting for the approval date to pass before telling the broker there is a problem.
- Assuming the vendor will be reasonable without getting an extension in writing.
- Treating the deposit as the maximum loss. If the vendor resells for less, you can owe more than the deposit.
- Applying with several banks at once in a panic. Multiple credit enquiries can make the position worse. Let one broker coordinate.
- Ignoring the default notice. The 14-day period is your last window to fix the problem.
Frequently asked questions
What happens if I can't get finance after signing a contract?
If the contract is subject to finance and the approval date hasn't passed, you serve written notice ending the contract and recover your deposit. If the contract is unconditional, you remain bound. The vendor can serve a default notice, and if you still can't settle, rescind the contract, forfeit your deposit and claim any loss on resale. Get your broker and conveyancer involved on the same day.
Do I lose my deposit if finance falls through?
Not if you end the contract validly under the finance condition or during cooling-off. If the contract is unconditional and you fail to settle, the vendor is generally entitled to keep the deposit, and can also sue for losses. Deposits in Victoria are conventionally 10% of the price, so on a $650,000 purchase that is $65,000 at risk.
Can the vendor sue me for more than the deposit?
Yes. If the vendor rescinds and resells for less than your contract price, they can claim the shortfall plus resale costs, legal costs and penalty interest, with your forfeited deposit credited against the claim. If they resell for more, they usually keep the deposit anyway. This is why a rescue loan, guarantor or negotiated extension is almost always better than walking away.
Can I get an extension on my finance approval date?
Only if the vendor agrees. Ask in writing before the approval date, explain the reason, and propose a specific new date. Many vendors will agree to a short extension rather than lose a sale. If the vendor refuses and finance isn't approved, serve notice ending the contract before the date passes, or accept that the contract will become unconditional.
What if the bank withdraws approval before settlement?
It can happen if your circumstances change or the lender discovers something new. Your contract is still binding. Contact your broker immediately to find an alternative lender, and ask your conveyancer to request a short settlement extension from the vendor. Avoid taking on new credit, changing jobs or making large transfers between approval and settlement.
Talk to GNT Finance
If a lender has just said no and you have a contract in hand, you need options fast. GNT Finance works with a wide panel of lenders and can tell you the same day which ones are realistic for your situation. 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.