What does “subject to finance” really mean?

If you’ve spent any time house hunting in Western Australia, you’ll no doubt have heard the phrase “subject to finance”. It’s one of the most common conditions included in an Offer and Acceptance (O&A) contract.  But in our experience, many buyers don’t fully realise what it actually means in practice.

So, what is a finance clause? What are your responsibilities as the buyer? And what happens if your circumstances change after you’ve been given the green light by the bank?

What does “subject to finance” mean?

Unless you have cash in the bank, when you make an offer to buy a property in WA, you’ll usually include a finance clause. This protects you by making the contract conditional upon securing finance approval from your lender - either a bank or other financial institution.

In simple terms, it means that if you can’t get approved for a home loan, you don’t have to go through with the purchase.

Without a finance clause, you would be locked into the contract regardless of whether your bank approved the loan.  A very risky position to be in…

How long do you have to get finance approval?

This depends on what you and the seller agree to in your contract.  In most cases, 21-28 days from acceptance of the contract is sufficient.  In a standard REIWA contract, it’s up to you as the buyer to include your preferred due date when you make your offer.

During the finance approval period, you’re expected to:

• Apply for your loan (if you haven’t already)

• Provide the lender with all requested documents promptly

• Use ‘all best endeavours in good faith’ to obtain finance

• Keep your settlement agent and real estate agent updated

  
  

What happens if my finance isn’t approved by the due date?

If your lender needs more time, your conveyancer can request an extension. However, the seller isn’t obliged to grant one, so it’s always best to get your application underway early.

In saying that, if the due date for your finance approval comes and goes, the contract simply continues in full force until either the buyer provides an approval letter or decline notice, or the seller terminates the contract.

If the seller requests it, you must provide them with evidence in writing of the progress of your application, including that you’ve made an application and any/or preliminary assessment that your broker has completed.

What happens when finance is approved?

Once your lender issues a formal finance approval letter, your broker or settlement agent provides this to the seller’s agent. At that point, the finance condition is considered satisfied.

From there, the contract becomes unconditional (assuming there are no other conditions, such as the sale of another property), and both parties are legally bound to proceed to settlement.

This is where some buyers get caught out.

What if your circumstances change after approval?

Put simply, once you’ve provided a finance approval letter, the subject to finance clause is fulfilled.

That means if your lender later withdraws your finance, for example, because you:

• Changed jobs

• Took on extra debt

• Your financial situation shifted unexpectedly

…you’re still legally locked into the contract.

If you can’t complete settlement without finance, you risk losing your deposit and being liable for damages claimed by the seller.  It sounds harsh, but it’s important that buyers understand clearly before they sign the implications of the conditions.  This obviously is an unusual case, but trust us - we’ve seen it happen.

What if your finance is declined?

If your lender declines your application within the timeframe (and you provide evidence), the contract can be terminated without penalty.  The key is making sure:

• You’ve applied for finance genuinely and in good faith

• You provide the written decline letter from your lender

If you fail to do this, the seller could argue that you haven’t complied with the finance condition, and that could leave you exposed.

Why timing and communication matter

The finance clause comes with strict deadlines, and missing them can put your contract at risk. Some buyers think they can “wait and see” how things play out with their bank, but that approach is risky.

If you take too long to provide documents, or don’t follow up with your lender, you may find the due date arrives before approval is issued. That can leave you in out of time and give the seller grounds to terminate the deal.  Being proactive and responsive is the best way to keep your purchase on track.

That’s why most conveyancers recommend:

• Applying for pre-approval before house hunting

• Keeping your broker or bank in the loop as soon as your offer is accepted

• Responding quickly to requests for payslips, tax returns or statements

The smoother your communication, the better your chance of meeting the finance deadline. We talk about this and other ways you can make your settlement smoother over on our recent blog.

The role of your settlement agent

Your conveyancer (or settlement agent) plays an important role in managing the finance clause. They’ll:

• Track the approval deadline

• Request extensions if needed

• Communicate with the seller’s agent on your behalf

• Confirm when finance has been approved or declined

This helps prevent misunderstandings and ensures you meet your contractual obligations.

Local insight: finance clauses in Perth’s northern suburbs

Whether you’re buying in Kallaroo, upsizing in Joondalup, or eyeing off a beachside property in Hillarys, the finance clause works the same way across WA on all standard REIWA contracts.

But local market conditions can influence how strictly sellers view finance clauses. In a competitive market, sellers may prefer cash or unconditional offers, making it even more important to have pre-approval ready before you put pen to paper.

Understanding the finance clause before you sign

The “subject to finance” clause is designed to protect buyers, but it works best if you understand how it operates. In a nutshell…

• Once you provide the finance approval letter, the clause is satisfied

• If your finance is later withdrawn, you’re still bound to the contract

• If your finance is declined, you must provide evidence within the timeframe

Buying property is one of the biggest commitments you’ll ever make. By being proactive with your lender, working closely with your settlement agent, and understanding your obligations under the finance clause, you’ll avoid nasty surprises and move forward with confidence.

FAQ: subject to finance in WA

Can I pull out after finance approval?

No. Once finance is approved and the letter is provided, the condition is satisfied and the contract is binding.

What happens if my finance is declined?

If your loan is declined and you provide written evidence from the lender, the contract can be terminated without penalty.

How long do I have to get finance approval in WA?

It depends on the terms of your contract.  Usually 21 to 28 days is sufficient, but speak to your broker and take their guidance on how long to allow when you make your offer..

What if my finance falls through after approval?

You’re still bound to complete settlement. If you can’t, you may lose your deposit and could face further claims from the seller.

Do I need pre-approval before making an offer?

It’s strongly recommended. Pre-approval strengthens your offer and helps you meet the finance deadline with confidence.

Buying in Perth’s northern suburbs and want peace of mind during the settlement process?

North Shore Conveyancing is a local settlement agent based in Kallaroo, supporting buyers across Joondalup, Hillarys, Mullaloo and beyond. We’ll help you understand your contract conditions, keep track of deadlines, and give you the confidence to move from “offer accepted” to “keys in hand.”

Contact Katelyn today to chat about your upcoming purchase.