What is the Third Party Financing Addendum?

It is TREC form 40-11, the promulgated addendum attached to a Texas contract when the purchase is conditioned on the buyer obtaining a loan from a third-party lender. Adopted by reference in TREC rule §537.47, its use is mandatory in that situation. It identifies the loan type and terms and sets the buyer's financing contingencies — Buyer Approval (Paragraph 2A) and Property Approval (Paragraph 2B) — with the deadlines to exercise them.

What happens if the buyer can't get loan approval?

Under Paragraph 2A, if the buyer cannot obtain Buyer Approval, the buyer must deliver both written notice of termination and a copy of the lender's written determination within the number of days specified after the effective date. On timely, complete delivery, the contract terminates and the earnest money is refunded; if the buyer misses the deadline or omits the required lender statement, the contingency is waived and the buyer is bound. The January 2025 form change added the lender-determination requirement so that Paragraph 2A mirrors the long-standing evidence requirement in Paragraph 2B.

What is the difference between Buyer Approval and Property Approval?

Buyer Approval (Paragraph 2A) is about the buyer — whether the lender will approve this buyer for the loan. Property Approval (Paragraph 2B) is about the property — whether the property satisfies the lender's underwriting, including appraisal, insurability, and required repairs. A creditworthy buyer can still terminate under 2B if the property appraises low or fails lender conditions. The two contingencies protect against different risks.

Do FHA and VA loans have special protections in the addendum?

Yes. For FHA and VA financing, the addendum carries mandatory federal appraisal provisions: the buyer is not obligated to complete the purchase at a price above the FHA appraised value or the VA reasonable value, though the buyer may choose to proceed and, for VA, pay the excess in cash. Conventional loans do not automatically include this appraisal escape, which is why selecting the correct loan type on the form matters.

Is the buyer required to actively pursue the loan?

Yes. Paragraph 2A requires the buyer to apply promptly and make every reasonable effort to obtain approval. A buyer cannot simply fail to submit documents to the lender and then use the contingency to terminate — that would not be acting in good faith. The buyer's protection depends on genuinely pursuing the financing and, if it falls through, delivering the termination notice by the deadline.

Can an agent write their own financing addendum instead of using 40-11?

No. TREC form 40-11 is a promulgated form adopted by reference in §537.47, and license holders are required to use it when a contract is conditioned on third-party financing. A license holder may not draft a substitute financing addendum. Using the promulgated form is part of the rule that agents use TREC-promulgated contract forms rather than practicing law by drafting their own.

Texas Third Party Financing Addendum (TREC 40-11)

TL;DR

The Third Party Financing Addendum, TREC form 40-11, is the promulgated addendum a buyer and seller attach to a Texas contract when the purchase depends on the buyer getting a loan from a third-party lender. It is adopted by reference in TREC rule 22 TAC §537.47 and its use is mandatory when the sale is conditioned on that financing. The addendum does two main jobs. First, it identifies the loan: the type — conventional, FHA, VA, USDA, or reverse — and the key terms the buyer will seek. Second, and most important for the exam, it creates the buyer's financing contingency and the deadline to exercise it. Under Paragraph 2A (Buyer Approval), the buyer must make every reasonable effort to obtain approval and, if unable to, must deliver the seller both written notice of termination and a copy of the lender's written determination within a specified number of days after the effective date — a requirement the January 2025 form change added to mirror Paragraph 2B. If the buyer misses that deadline or fails to deliver the required documentation, the contingency is waived and the buyer is bound. A 2025 update to the form hardened this into an active, deadline-driven duty rather than an open-ended "approval" condition. Paragraph 2B (Property Approval) lets the buyer terminate if the lender's underwriting — appraisal, insurability, or required repairs — is not satisfied. For FHA and VA loans, the addendum also carries mandatory federal appraisal provisions letting the buyer decline to proceed at a price above the appraised or reasonable value. The buyer must also authorize the lender to share loan-status information with the parties.

What the addendum is and when it is used

Most Texas home purchases are financed, and when a contract depends on the buyer obtaining a loan, TREC form 40-11, the Third Party Financing Addendum, is attached to the promulgated contract. It is adopted by reference in TREC rule §537.47, and license holders are required to use the promulgated form when a transaction is conditioned on third-party financing — an agent may not draft a substitute.

The addendum's function is to convert "the buyer is getting a loan" from an informal expectation into defined contract terms with defined deadlines. It tells the seller what kind of financing the buyer is pursuing and, critically, sets out the conditions under which the buyer may walk away and recover the earnest money if the financing does not come together. For how this financing contingency fits among the other conditions a buyer may place on a contract, see our guide to contract contingencies.

Identifying the loan

The first part of the addendum identifies the financing. The buyer checks the loan type — conventional, or a government-backed FHA, VA, or USDA loan, or a reverse mortgage — and fills in the key terms being sought, such as the loan amount, the maximum interest rate, and limits on origination charges. Each loan type has its own paragraph with terms appropriate to it.

Getting the loan type right matters because the buyer's protections differ by type. FHA and VA loans carry additional federal appraisal protections built into the form; conventional loans do not have the same automatic appraisal escape. Checking the wrong box, or leaving terms blank, is a common and consequential drafting error. The identification section is what tells the seller how solid the buyer's financing is and which contingencies apply.

Paragraph 2A: Buyer Approval and the termination deadline

The heart of the addendum is Paragraph 2A, the Buyer Approval contingency. The buyer must apply promptly and make every reasonable effort to obtain approval for the described financing. Under the 2025 version of Paragraph 2A, if the buyer cannot obtain Buyer Approval, the buyer must deliver to the seller both written notice of termination and a copy of the lender's written determination within a specified number of days after the effective date of the contract. On timely, complete delivery, the contract terminates and the earnest money is refunded to the buyer; if the buyer fails to deliver the required notice and lender statement by the deadline, the Buyer Approval contingency is waived and the buyer remains bound, subject to any other applicable contingency.

The crucial point — reinforced by the 2025 update to the form — is that this is an active duty with a hard deadline. If the buyer does not deliver both the termination notice and the lender's written determination by the deadline, the Buyer Approval contingency is waived, and the buyer is bound to proceed (subject to any other applicable contingency). The 2025 revision moved the form away from a passive, open-ended "waiting for approval" condition toward a bright-line test: were the required termination notice and lender determination delivered on time? The buyer also cannot sit on their hands — the obligation to make every reasonable effort means a buyer cannot simply refuse to submit documents and then invoke the contingency. For how earnest money is handled when a contract terminates, see our guide to earnest money.

Provision	Effect
Loan type selection	Conventional, FHA, VA, USDA, or reverse — sets which protections apply
Paragraph 2A — Buyer Approval	Buyer must deliver written termination notice and the lender's written determination by the deadline or the contingency is waived
Paragraph 2B — Property Approval	Buyer may terminate if lender underwriting (appraisal, insurability, repairs) fails
FHA/VA appraisal provisions	Buyer may decline to proceed above appraised or reasonable value

Paragraph 2B: Property Approval

Separate from the buyer's own creditworthiness, Paragraph 2B addresses the property. Buyer Approval concerns whether the lender will lend to this buyer; Property Approval concerns whether the lender will lend on this property. If the lender determines that the property does not satisfy its underwriting requirements — including the appraisal, insurability, or lender-required repairs — the buyer may terminate under the terms of Paragraph 2B.

This distinction is frequently tested. A buyer who is fully creditworthy can still have financing fall through because the property appraises low or fails to meet lender conditions, and Property Approval is the mechanism that lets the buyer exit in that situation. The two contingencies work together: 2A protects against the buyer being unable to qualify, and 2B protects against the property being unlendable.

FHA and VA appraisal provisions

When the buyer selects FHA or VA financing, the addendum includes mandatory federal provisions tied to the appraised value. The buyer is not obligated to complete the purchase at a price exceeding the value established by the FHA appraisal or the VA's notice of reasonable value. The buyer keeps the privilege of proceeding anyway — for a VA loan, by paying the excess above reasonable value in cash — but cannot be forced to.

These provisions exist because FHA and VA are federal loan-guarantee programs with borrower protections that override a bare contract price. They give government-backed buyers an appraisal-based escape that a conventional buyer does not automatically get, which is why identifying the correct loan type on the addendum is so important. The addendum also requires the buyer to authorize the lender to furnish loan-status information to the seller and the parties' agents, so the seller can monitor whether financing is on track. For the disclosure duties that run alongside the contract during this period, see our guide to property disclosure requirements.

Frequently Asked Questions

What is the Third Party Financing Addendum?: It is TREC form 40-11, the promulgated addendum attached to a Texas contract when the purchase is conditioned on the buyer obtaining a loan from a third-party lender. Adopted by reference in TREC rule §537.47, its use is mandatory in that situation. It identifies the loan type and terms and sets the buyer's financing contingencies — Buyer Approval (Paragraph 2A) and Property Approval (Paragraph 2B) — with the deadlines to exercise them.
What happens if the buyer can't get loan approval?: Under Paragraph 2A, if the buyer cannot obtain Buyer Approval, the buyer must deliver both written notice of termination and a copy of the lender's written determination within the number of days specified after the effective date. On timely, complete delivery, the contract terminates and the earnest money is refunded; if the buyer misses the deadline or omits the required lender statement, the contingency is waived and the buyer is bound. The January 2025 form change added the lender-determination requirement so that Paragraph 2A mirrors the long-standing evidence requirement in Paragraph 2B.
What is the difference between Buyer Approval and Property Approval?: Buyer Approval (Paragraph 2A) is about the buyer — whether the lender will approve this buyer for the loan. Property Approval (Paragraph 2B) is about the property — whether the property satisfies the lender's underwriting, including appraisal, insurability, and required repairs. A creditworthy buyer can still terminate under 2B if the property appraises low or fails lender conditions. The two contingencies protect against different risks.
Do FHA and VA loans have special protections in the addendum?: Yes. For FHA and VA financing, the addendum carries mandatory federal appraisal provisions: the buyer is not obligated to complete the purchase at a price above the FHA appraised value or the VA reasonable value, though the buyer may choose to proceed and, for VA, pay the excess in cash. Conventional loans do not automatically include this appraisal escape, which is why selecting the correct loan type on the form matters.
Is the buyer required to actively pursue the loan?: Yes. Paragraph 2A requires the buyer to apply promptly and make every reasonable effort to obtain approval. A buyer cannot simply fail to submit documents to the lender and then use the contingency to terminate — that would not be acting in good faith. The buyer's protection depends on genuinely pursuing the financing and, if it falls through, delivering the termination notice by the deadline.
Can an agent write their own financing addendum instead of using 40-11?: No. TREC form 40-11 is a promulgated form adopted by reference in §537.47, and license holders are required to use it when a contract is conditioned on third-party financing. A license holder may not draft a substitute financing addendum. Using the promulgated form is part of the rule that agents use TREC-promulgated contract forms rather than practicing law by drafting their own.

Bottom Line

TREC form 40-11, the Third Party Financing Addendum, is the mandatory promulgated addendum for Texas contracts conditioned on third-party financing, adopted by reference in rule §537.47. It identifies the loan type — conventional, FHA, VA, USDA, or reverse — and sets the buyer's financing contingencies. Paragraph 2A (Buyer Approval) requires the buyer to make every reasonable effort to obtain approval and, if unable to, to deliver both written notice of termination and a copy of the lender's written determination by a set deadline; missing the deadline or omitting the lender statement waives the contingency and binds the buyer — the January 2025 form change added the lender-determination requirement to mirror Paragraph 2B. Paragraph 2B (Property Approval) lets the buyer terminate if the lender's underwriting of the property fails. FHA and VA loans add mandatory federal appraisal provisions letting the buyer decline to proceed above appraised or reasonable value, and the buyer must authorize the lender to share loan-status information. For related Texas topics, see our guides to contract contingencies, earnest money, and property disclosure requirements.

Source: 22 TAC §537.47 — TREC form 40-11 (Cornell) · TREC — Third Party Financing Addendum (40-11) · TREC rules — promulgated contract forms