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Contract Subject to Finance Deposit

When it comes to purchasing property, one of the most important clauses in a contract is “subject to finance”. But what does this mean? And why is it important?

A contract subject to finance deposit is a clause in a property sale contract that states the purchase of the property is conditional upon the buyer obtaining financing from a lender or financial institution. This clause is usually included for the benefit of the buyer, as it gives them an escape route if they cannot secure financing for the purchase.

In simple terms, the contract subject to finance deposit clause means that if the buyer cannot obtain the necessary financing within a specified time frame, usually 14 or 21 days, the contract will become void and the buyer will be refunded their deposit. This clause is essential for protecting the buyer`s interests, as they may find themselves in a difficult financial situation if they are unable to obtain financing.

It is important to note that the buyer must make a genuine effort to obtain financing. If they do not make a reasonable effort, the seller may be able to retain the deposit. Therefore, it is essential that the buyer approaches a financial institution or lender before entering into the contract and ensures that they are eligible for financing.

The contract subject to finance deposit clause is also beneficial for sellers, as it ensures that buyers are financially capable of completing the purchase. It also provides some protection against buyers backing out of the sale without a valid reason.

In essence, the contract subject to finance deposit clause provides a safety net for both parties involved in a property transaction. It ensures that the buyer is not locked into a purchase they cannot afford, and it protects the seller against a buyer who is unable to obtain financing.

In conclusion, the contract subject to finance deposit clause is a critical component of any property sale contract. It provides essential protection for both buyers and sellers and ensures that the property transaction runs smoothly. Therefore, it is important for buyers to approach a lender or financial institution before entering into a contract and ensure they are eligible for financing to avoid any legal disputes.

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