What is a financing contingency in a home purchase contract?

A financing contingency protects a home buyer who needs a mortgage. In short, it lets you cancel the contract and get your earnest money back if your loan falls through — within the rules and deadlines spelled out in the contract.

How it works in Texas

In Texas, the financing contingency comes from the Third Party Financing Addendum attached to the purchase contract. It has two parts:

• Buyer Approval: you have a negotiated number of days (often around 21) to obtain loan approval based on your finances. If you can’t — and you give written notice in time — you can terminate and recover your earnest money.
• Property Approval: this covers the home itself. If the property won’t appraise for at least the sales price, can’t be insured, or doesn’t meet the lender’s requirements, the addendum gives you the right to terminate up to closing.

The appraisal piece

Property Approval is why a low appraisal matters so much. If the home appraises below the contract price, the lender won’t finance the full amount — so you can renegotiate, bring extra cash to closing, or, under the addendum, terminate.

Why deadlines are everything

The protection only works if you act within the negotiated window and give proper written notice. Miss it, and you could lose both the right to terminate and your earnest money. Getting your mortgage pre-approval squared away early makes this contingency far less stressful. You can see the official addendum at the Texas Real Estate Commission.

Last updated: June 2026 · Reflects the current TREC Third Party Financing Addendum.