Sometimes in life, we must take a risk, and of course, in life, there are always going to be people that have a difference of opinion. This blog will allow you to have the information required for you to have your own opinion and preference as to whether you would be the sort of person to buy a property subject to finance or unconditional. It also might depend on the overall circumstances too at the time.

Unconditional sounds like such a scary word, right? The thought of having little to no conditions on the purchase of a property could be sound quite frightening, especially to anybody that is purchasing their first home. An unconditional offer means you are wanting to purchase a property without a financial clause. You should still be able to request the purchase to allow for a building and pest report, however, talk to your conveyancer as to what that means. Do you get to exit the contract because the building inspector said the house isn’t in the best condition? You will find that your conveyancer will probably tell you ‘no’ and that it needs to have significant structural defects or be swarmed with termites to allow you to not proceed with the purchase.

Some of you may be thinking that if you have a pre-approval, there is nothing to worry about. It would depend on your circumstances and how much due diligence has been done prior to purchasing. It’s quite easy to get a pre-approval application submitted and approved, but there is so much more to the process than just completing an application and providing your supporting documents. If you are pre-approved, you should have a high level of confidence that your credit score is sufficient for that bank.

So 1 box was ticked in the due diligence process:

- Credit file

You provided the rest of your documents, so should be right from here?

The next part you would want to have confidence in is your income meeting the banks’ policy. Just because you provided your income documents, does not mean your income is acceptable to that bank. You might have provided pay slips to get your pre-approval, however you failed to mention that you have an end date to your employment which could be an issue for that bank. You also might have provided pay slips to get your pre-approval, however failed to mention that you own the company that employs you which might mean that the bank needs full financials and tax returns to assess your income. If you are dealing with the right person, 2nd box ticked in the due diligence process:

- Income / Correct borrowing capacity calculation

The last part is reviewing your deposit, bank statements if required and assessing the equity you have in existing properties. The review of your deposit and bank statements can be very important for first home buyers that have less than a 10% deposit. Most banks will want to see that you have a 5% deposit, and that money needs to be genuine savings, evidenced in your account for at least 3 months. Still possible if you are not quite at 5% if you have been renting through a licensed property agent (and you are named on the lease), but these things all need to be checked and form part of the due diligence process. Some banks do require to see evidence of your salary or spending account (any bank can also request at their discretion if not on their checklist also), so we ideally wouldn’t want to see large amounts of spending in the statements that we are reviewing and certainly wouldn’t want to see large amounts of gambling expenses in there either. You also wouldn’t want to have a pre-approval, estimating that your house is worth $1 million (and needing that value to purchase the next house), to later find out that the bank has valued it at $900,000 and your pre-approval is invalid. Awks!

If you are dealing with the right person, 3rd box ticked in the due diligence process:

- Deposit/statements and/or equity

The last and unofficial box is just making sure your overall position matches with the banks’ policy. You might be buying a 1 bedroom 35sqm apartment or acreage with aboriginal overlays. You might also think it’s a great idea to buy a CBD apartment with a 5% deposit. Are these acceptable to the bank? This falls into the type of property you are purchasing which isn’t in any banks loan application checklist and won’t even be discussed with somebody that isn’t equipped to understand your plans properly.

The good news is that you can purchase subject to finance. If anything falls through or if there is a reason to exit the contract via the finance clause, you shouldn’t be at risk of losing your 10% deposit. We have seen countless examples of pre-approvals being done incorrectly over the years and the appropriate risks not being communicated to clients.

In summary, you have added protection when purchase subject to finance but might have greater buying power when going unconditional, especially in a hot market where there is a lot of competition.

Deal with a professional that knows what they are doing, and the risks significantly drop.

- Luke Jacobson