Scenario: a funding shortfall before settlement

This page describes a hypothetical home buyer who discovers a funding gap shortly before settlement. The buyer and their lenders are invented for illustration. The page explains how the situation generally unfolds and points to Privet tools where you can enter your own numbers.

How the gap appears

Our hypothetical buyer signed a contract for a family home, paid a deposit and arranged a home loan. The loan amount was worked out from the purchase price, with the buyer's savings covering the rest along with transfer duty, legal fees and moving costs.

Shortly before settlement, one of two things goes wrong. In the first version, the lender's valuation comes in noticeably below the contract price, and because the lender sizes the loan against its valuation rather than the price, it offers less than expected. In the second version, the buyer was relying on the proceeds from selling their current home, and that sale has been delayed because the other buyer's finance has stalled.

Either way, the money available on settlement day no longer covers everything that is due. This is what people mean by a settlement shortfall.

Why the date matters so much

A property contract sets a settlement date and generally gives the seller rights if the buyer does not complete on time. The detail varies by state and by the form of contract, but common features include:

• An obligation to pay interest or a similar amount on the unpaid balance for each day of delay.
• The seller's right to serve a notice requiring settlement within a set period.
• If that notice is not complied with, a possible right for the seller to end the contract, keep the deposit and claim further losses.

Because these consequences escalate, the first call should be to the buyer's conveyancer or property lawyer, who can read the actual contract and explain the timeline. Privet cannot interpret a specific contract.

Working out the size of the gap

Before looking at funding, the buyer needs an accurate figure. The cash required at settlement usually includes the balance of the price, duty, registration fees, the lender's costs and adjustments for rates and other outgoings. The stamp duty estimator estimates transfer duty from each state's published schedule, and the loan cost estimator helps add up the fees in a loan offer. Neither applies concessions or confirms the exact amount, so check the final settlement statement with the conveyancer.

Most lenders do not lend against duty, so it usually has to come from the buyer's own funds. That makes duty a frequent cause of an unexpected gap.

The options people consider

Adding more of their own money

The simplest fix, if available, is to contribute more savings or redirect funds set aside for other purposes. Some buyers ask family for help, either as a gift or with a family member acting as guarantor. A guarantor takes on real risk and should get independent legal advice before signing.

Asking the lender to look again

Where the problem is a valuation, the buyer can ask whether the lender will review it, supplying recent comparable sales. Some lenders will lend a higher share of the lower value, possibly with lenders mortgage insurance or different conditions. The valuations lesson explains why a lender's figure can differ from the price.

Applying to a different lender

Another lender may use a different valuer or policy. The drawback is time: a fresh application, valuation and documents close to the deadline may not finish before settlement.

Negotiating more time

The buyer's conveyancer can ask the seller to agree to a later settlement. Sellers who are not relying on the funds for their own purchase may agree, possibly in exchange for compensation. Any variation should be in writing.

Short-term funding

If the gap is caused by a delayed sale of the buyer's existing home, bridging finance may cover the period until that sale settles. Where equity sits in another property, some borrowers look at a second mortgage or a caveat loan. These are generally more expensive than a standard home loan, carry establishment and legal fees, and depend on a clear way to repay. Arranging them quickly can also lead to rushed decisions.

What lenders look at when time is short

A lender asked to fund a gap at short notice will usually want the contract, evidence of the original loan offer, the valuation, the settlement statement, identification and proof of how the short-term debt will be repaid. If the plan relies on the existing home selling, it will want the sale contract or an agent's appraisal. The buy before you sell scenario covers that pattern in more depth.

Modelling it with your own figures

Suppose the hypothetical buyer wants to see whether a short bridge until their sale settles is worth it. They would enter the price, their existing loan and the expected sale proceeds in the bridging calculator, then load the rate and fees from a written offer into the cost estimator to see the total over a short and a longer delay. Comparing that total with the seller's likely late-settlement charges, and with the risk of losing the deposit, makes the trade-off concrete. Running a version where the sale takes much longer than hoped is a useful stress test.

Red flags under pressure

Urgency makes buyers vulnerable. Be wary of anyone asking for upfront fees before documents are issued, payment to a personal account, or a signature before the full cost is shown in writing. The scams and red flags guide lists warning signs. If repayments become difficult later, the National Debt Helpline offers free financial counselling.

Questions to ask before choosing a path

1. What does my contract say about late settlement, and what notices could the seller serve?
2. What is the exact shortfall once duty, fees and adjustments are included?
3. Will my lender review the valuation, and how long would that take?
4. If I use short-term funding, what is the total cost, and how and when will it be repaid?
5. Is the short-term loan regulated, and is the lender licensed and an AFCA member?

This scenario is general information, not legal or financial advice.