In NSW, the standard contract for sale does not make your purchase conditional on finance, so if you exchange and your loan is not approved, you are still bound to settle. If you cannot, you risk losing your 10% deposit, so make sure your finance is as firm as possible before cooling off ends or before you bid at auction.
This is one of the questions Marcelino is asked most, and one of the most common misunderstandings: many buyers think pre-approval means their loan is approved. It does not.
Pre-approval vs unconditional approval
| Pre-approval (conditional approval) | Unconditional (formal) approval | |
|---|---|---|
| What it means | The lender is willing in principle to lend up to an amount | The lender has approved the loan for this property |
| Property checked? | No | Yes, usually after a valuation |
| Can it be withdrawn? | Yes, easily | Only in limited circumstances |
| Safe to bid at auction on? | Risky | Safer |
A lender can decline formal approval after pre-approval if the valuation comes in low, your circumstances change, or their lending policy changes.
How to protect yourself in NSW
Private treaty: exchange with a cooling off period. That gives you 5 business days to get formal approval. If it falls through, you can pull out and lose only 0.25% of the price. See our cooling off period guide.
Subject to finance clause: you can ask for a special condition making the contract conditional on finance. Sellers in Sydney often refuse, but it is worth asking, especially in a slower market.
Auction: there is no cooling off at auction and no finance clause. Only bid if your lender has assessed this property, ideally with a valuation done beforehand.
Longer settlement: a longer settlement does not protect your deposit, but it can give the lender more time to complete their checks.
What happens if finance falls through after exchange?
If cooling off has ended and you have no finance clause, you are still required to settle. If you cannot:
- The seller may charge you interest for late settlement
- The seller may serve a Notice to Complete. See our settlement guide
- If you still cannot settle, the seller can usually end the contract, keep the deposit and claim further losses
If your finance is in trouble, call your conveyancer and your broker immediately. There may be options, such as another lender or a short extension.
Common questions
FAQs
Is pre-approval enough to exchange?
Only if you exchange with a cooling off period and get formal approval within it.
Can I add a finance clause to a NSW contract?
You can ask for one as a special condition. The seller does not have to agree.
What if the valuation comes in low?
Your lender may lend less. You would need to cover the difference yourself, so check this before cooling off ends.
City Peak Conveyancing acts on NSW property only. This page is general information, not advice about your circumstances.