What is the Third Party Financing Addendum?
It’s a TREC form that gets attached to your purchase contract when you’re using a loan. The current version is TREC 40-11. TREC made it mandatory starting January 3, 2025, replacing the old 40-10.
It does three main things:
- Says what kind of loan you’re getting.
- Says you’ll apply right away and work to get approved.
- Gives you two specific ways to terminate and get your earnest money back if the financing doesn’t come through.
I’m a loan officer, not a lawyer. Your agent fills out the contract. This is how the form reads, so you know what to ask.
What goes in Paragraph 1?
The type of financing: conventional, a Texas Veterans Land Board loan, FHA, VA, USDA, reverse mortgage, or other. Each one has blanks for the loan amount, term, a maximum interest rate, and a maximum on origination charges.
Paragraph 1 also says you have to apply promptly and make every reasonable effort to get approved. That includes getting your lender every document they ask for. So when I ask for something, send it fast. It’s part of your contract, not just my paperwork.
How does Buyer Approval work?
This is Paragraph 2A. There are two boxes, and only one gets checked.
Subject to Buyer Approval. The contract lists a number of days after the Effective Date. If you can’t get Buyer Approval within those days, you can terminate by giving the seller:
- a notice of termination, and
- a copy of a written statement from the lender giving the reasons.
Do that in time and your earnest money is refunded. If you don’t terminate within those days, the contract is no longer subject to Buyer Approval. That window closes for good.
The form defines Buyer Approval. It’s obtained when the loan terms are available, and the lender determines you’ve met all its requirements for assets, income and credit history.
Not subject to Buyer Approval. That box means you’re giving up this protection. It can make an offer look stronger to a seller. Talk to me and your agent before you do. If something goes wrong with your approval after that, the addendum won’t save your earnest money on that basis.
How many days should I ask for?
It’s negotiated, and the form doesn’t set a number. The right number depends on how far along your approval is when you write the offer.
My advice: get as far through underwriting as you can before you shop. If I’ve already looked at your income, assets and credit, you can ask for fewer days and still be protected. That makes your offer cleaner without taking a blind risk.
How does Property Approval work?
This is Paragraph 2B. It’s about the house, not you.
If your lender determines the property doesn’t meet its underwriting requirements for the loan, you can terminate on or before the 3rd day before the closing date. The form lists examples: appraisal, insurability, and repairs the lender requires.
Same as before, you need a notice of termination and a copy of the lender’s written statement with the reasons. Do it in time and your earnest money comes back. If you don’t terminate under this paragraph, Property Approval is treated as obtained.
There’s one link to the survey. On the TREC resale contract, if you agreed to get a new survey and didn’t, you can’t use Property Approval to terminate because there’s no survey. More on surveys in the T-47 article.
What’s different for FHA and VA loans?
Paragraph 4 is the FHA and VA required provision. You’re not obligated to buy, or lose your earnest money, unless you’ve received a written statement of appraised value of at least the amount filled in. For VA, the same applies if the price is more than VA’s reasonable value.
The addendum says the 3-day notice requirement in Paragraph 2B doesn’t apply to this paragraph.
You can still choose to go ahead even if the value comes in low. For VA, if you pay over VA’s reasonable value, you cover the difference in cash, and the form limits where that cash can come from.
What does “time is of the essence” mean here?
Paragraph 2 says it, and the form means it. Deadlines are strict. If your Buyer Approval window is, say, 15 days and you send notice on day 16, the protection is gone.
Put both dates on your calendar. The Buyer Approval deadline, and 3 days before closing for Property Approval.
Can the seller see my loan status?
Yes. Paragraph 5 authorizes your lender to share the status of your loan approval with the seller, you, and the agents. It also lets the lender, title company and escrow agent share the closing disclosure and settlement statement with the agents.
So I’ll keep your agent in the loop. That’s normal and expected.
How is this different from the option period?
The option period is a short window where you can terminate for any reason. You pay an option fee for it, and the seller keeps the fee if you walk.
The financing addendum is only about the loan and the property meeting the lender’s requirements. Termination under it needs the lender’s written statement, and the deadlines are different.
They work together. Your inspections happen in the option period. Your approval and appraisal fall under the financing addendum.
What should I do before signing?
- Get pre-approved, and ideally underwritten, before you write.
- Ask your agent which Buyer Approval box is checked and how many days.
- Calendar every deadline.
- Know your loan type. A conventional loan and an FHA loan don’t read the same way in Paragraph 4.
For contract questions, check with your agent or a real estate attorney. For where your approval stands, call me at 817-873-6288.