What is the Third Party Financing Addendum in Texas?

The Third Party Financing Addendum is the TREC form that makes a Texas contract conditional on the buyer's loan. It identifies the loan type and terms, and it gives the buyer a deadline to terminate if the lender will not approve the buyer. The current version is TREC form 40-11, effective 01/03/2025.

Why the addendum exists at all

The One to Four Family Residential Contract does not, by itself, care how the buyer pays. Strip the addenda off and you have a contract to buy a house for a price by a date. If the buyer's loan falls apart and there is no financing addendum attached, the buyer still owes performance, and the earnest money is exposed.

The Third Party Financing Addendum is what converts "I am getting a mortgage" from an assumption into a contract term. It is attached to the contract and checked as an addendum on the contract's addenda paragraph. If the box is not checked and the form is not attached, the financing condition does not exist (TREC contract forms).

The form itself carries a footer date of 11-04-2024, and TREC's contract list shows it effective 01/03/2025 (TREC form 40-11, PDF). Both dates appear in the wild, and they describe the same two-page form. The contract it attaches to, for an ordinary resale, is form 20-19, effective 07/01/2026 (TREC).

The whole form turns on one sentence: approval means two approvals

Almost every explanation of this addendum gets this wrong, and getting it wrong costs deals.

Paragraph 2 reads: "Approval for the financing described above will be deemed to have been obtained when Buyer Approval and Property Approval are obtained. Time is of the essence for this paragraph and strict compliance with the time for performance is required" (TREC form 40-11, PDF).

Two separate approvals, two separate subjects, two separate deadlines. Buyer Approval is about the borrower. Property Approval is about the house. They are not the same test, they do not expire on the same day, and a buyer who thinks "my financing contingency" is one thing has misread the form.

The "time is of the essence" sentence is not decoration either. It means a deadline missed by a day is a deadline missed.

Paragraph 2A, Buyer Approval: an election, and a hard cut-off

Paragraph 2A is a check one box only election. The parties choose whether the contract is subject to Buyer Approval at all.

If the box making the contract subject to Buyer Approval is checked, the form gives the buyer this: "If Buyer cannot obtain Buyer Approval, Buyer may terminate this contract within ___ days after the Effective Date of the contract by giving Seller: (i) notice of termination; and (ii) a copy of a written statement from the lender setting forth the reason(s) for lender's determination." On a timely termination, "the earnest money will be refunded to Buyer."

Then comes the sentence that decides more outcomes than any other line in the addendum:

"If Buyer does not terminate the contract under Paragraph 2A, the contract shall no longer be subject to the Buyer obtaining Buyer Approval."

Read that literally, because it operates literally. The day count in that blank is not a reminder to check in with the lender. It is the entire life of the borrower-side contingency. Let it pass without a termination and the contingency is gone — not weakened, not extended while underwriting continues, gone. A buyer who is denied in week five, on a contract with a 21-day Buyer Approval window, has no exit under 2A. The earnest money is no longer protected by that paragraph.

The form also defines when the approval counts as obtained: Buyer Approval "will be deemed to have been obtained when (i) the terms of the loan(s) described above are available and (ii) lender determines that Buyer has satisfied all of lender's requirements related to Buyer's assets, income and credit history." Assets, income, credit history. That is the borrower. Nothing in that sentence is about the house.

The other box — "This contract is not subject to Buyer obtaining Buyer Approval" — is a real election that gets used in competitive offers. A buyer who checks it has agreed that a loan denial is their problem, not a contract exit.

Paragraph 2B, Property Approval: the house, and a much later deadline

Paragraph 2B covers the other half: "If Buyer's lender determines that the Property does not satisfy lender's underwriting requirements for the loan (including but not limited to appraisal, insurability, and lender required repairs) Buyer may terminate this contract on or before the 3rd day before the Closing Date" by giving the seller notice of termination and a copy of the lender's written statement of reasons. The earnest money is refunded (TREC form 40-11, PDF).

Three things worth pulling out of that.

Appraisal lives here. A low appraisal is a property problem, not a borrower problem, and it is 2B that addresses it — not 2A. TREC also publishes a separate Addendum Concerning Right to Terminate Due to Lender's Appraisal, form 49-1, effective 03/01/2019, which is used to handle the appraisal outcome more specifically, and which is frequently waived or partially waived in a competitive offer. A buyer who waives appraisal protection is agreeing to cover a shortfall in cash.

Insurability lives here too. If a carrier will not write the policy the lender requires, that is a property approval failure. On older Hill Country properties, roof age, wildfire scoring and prior claims history all reach this paragraph.

It runs almost to closing. "On or before the 3rd day before the Closing Date" is a far later date than the 2A window. That asymmetry is deliberate: the borrower's file should be resolved early, but the appraisal, the insurance binder and any lender-required repairs are not finished until late.

Both exits require the lender's letter

Under 2A and under 2B, termination takes two documents: the notice and "a copy of a written statement from the lender setting forth the reason(s) for lender's determination."

A phone call from a loan officer is not that. An email saying "we're not going to be able to do this" may or may not be that. A buyer who gives notice on the last day and cannot produce the lender's written statement of reasons has delivered half of a termination, and a seller with an aggressive position can say so. Ask the lender for the letter at the same moment the file turns, not on the deadline.

Paragraph 1: what the buyer promised to do, and the blanks that cap the loan

Paragraph 1 opens with an affirmative duty: the buyer "shall apply promptly for all financing described below and make every reasonable effort to obtain approval for the financing, including but not limited to furnishing all information and documents required by Buyer's lender." A buyer who sits on a document request is not making every reasonable effort.

Below that duty, the financing types run lettered A through G, each its own checkbox with its own fill-in terms:

A. Conventional financing — a first mortgage loan, plus an optional second mortgage loan, each with a principal amount stated "(excluding any financed PMI premium)," a term in years, an interest rate "not to exceed ___% per annum for the first ___ year(s) of the loan," and Origination Charges as shown on Buyer's Loan Estimate not to exceed ___% of the loan.
B. Texas Veterans loan — a loan from the Texas Veterans Land Board, "at the interest rate established by the Texas Veterans Land Board."
C. FHA insured financing — "A Section ___ FHA insured loan of not less than $___ (excluding any financed MIP)," with the same rate and origination caps.
D. VA guaranteed financing — "of not less than $___ (excluding any financed Funding Fee)."
E. USDA guaranteed financing — same structure, also excluding any financed funding fee.
F. Reverse mortgage financing — "a reverse mortgage loan (also known as a Home Equity Conversion Mortgage loan)," with a box for whether it will or will not be FHA insured.
G. Other financing — a named lender, amount, term and the same caps.

Two details in there are easy to skim past and expensive to miss.

The stated amounts exclude financed PMI, MIP or Funding Fee. The number in the blank is the base loan, not the number that shows up on the note after the premium is rolled in.

The rate and origination caps are real terms. They describe the loan the contract was conditioned on. A loan offered at a higher rate than the cap, or with origination charges above the stated percentage of the loan as shown on the buyer's Loan Estimate, is not the loan in the addendum. Those blanks should be filled from the buyer's lender, in writing, not estimated by an agent. Filled too tight, they create exits nobody intended. Filled too loose, the contingency is decorative.

The survey trap the contract writes into 2B

The main contract reaches into this addendum in one specific place, and it converts a missed errand into a lost termination right.

Paragraph 6C of the One to Four Family Residential Contract (Resale) is a check-one-box survey election. If box (2) is checked — the buyer obtains a new survey at the buyer's expense within a stated number of days — the form adds that if the buyer fails to obtain the survey, the buyer "may not terminate the contract under Paragraph 2B of the Third Party Financing Addendum because the survey was not obtained" (TREC form 20-19, PDF).

A buyer who agreed to order the survey and then did not order it cannot use Property Approval to exit on the grounds that the lender could not complete the file without one. The buyer's own inaction does not become a contingency failure.

Under box (1), where the seller furnishes the existing survey plus a T-47 Affidavit or T-47.1 Declaration, the exposure flips: if the seller fails to furnish both in time, the buyer obtains a new survey at the seller's expense no later than 3 days prior to the Closing Date.

It is not a substitute for the option period

The option period gives an unrestricted right to terminate for any reason, and it typically expires well before either financing deadline. The financing addendum gives two conditional rights, each tied to a specific failure and each requiring the lender's written statement.

They are not interchangeable. A buyer who is nervous about the loan should not assume 2A rescues a decision they could have made during the option period — and a buyer whose 2A window closes silently has given up the borrower-side protection they wrote into the contract while still holding the property-side one.

All of these deadlines count from the effective date. If the effective date is wrong, they are all wrong.

If a financing deadline needs to move, that is done on the Amendment to Contract, which has a dedicated item for changing the date the buyer must give notice under this addendum.

Loan limits sit behind the blanks

The addendum states the loan amount. Whether that amount is available depends on program limits that change annually.

The 2026 conforming one-unit baseline is $832,750, up $26,250 from $806,500 in 2025, with a high-cost ceiling of $1,249,125 (FHFA).
FHA for 2026 runs a nationwide one-unit floor of $541,287 and a ceiling of $1,249,125, applied by county.
VA: a veteran with full entitlement has no VA loan limit, and the VA guaranty does not exceed 25% (VA).

Credit score minimums are not something to publish as fact. Program floors exist, but lender overlays move them, and two lenders will quote the same borrower differently. Get the answer from a lender, in writing, before the financing blanks get filled in.

How this goes wrong in practice

The 2A day count passes with no denial, no termination and no thought. The contingency is gone by operation of the paragraph.
The buyer terminates with a phone call. No lender letter, no valid termination under either 2A or 2B.
The addendum is attached but the addenda box on the contract is not checked. Sloppy, and it creates an argument nobody needs.
The rate or origination cap does not match what the lender is actually offering, so the contract is conditioned on a loan the buyer was never getting.
The loan amount in the blank includes financed MIP or Funding Fee, which the form says it should not.
The buyer changes something mid-contract — a new credit card, a job change, a large unexplained deposit — and underwriting re-pulls in week four, after 2A has already closed.
Appraisal comes in low with appraisal protection waived, and the buyer covers the gap in cash.

None of these are exotic. They are the ordinary failure modes, and most of them are calendar problems as much as finance problems.

Questions about a specific property?

Call or text 830-446-3847 · Email heath.shepard@kw.com

This page explains how the TREC Third Party Financing Addendum works. It is not legal or lending advice. Loan terms and approval come from a licensed lender; contract language questions go to a Texas real estate attorney.