Third Party Financing Addendum — Page by Page

Top of Page 1 — Property

• "TO CONTRACT CONCERNING THE PROPERTY AT ______" — enter the street address + city. Example: 123 Main Street, Houston, TX.
• This connects the financing addendum to the correct purchase contract.

Paragraph 1 — Type of Financing

• The first question is basically: what kind of loan is the buyer getting? Check the financing type that actually applies.

A. Conventional Financing

• Check this when the buyer is getting a regular conventional mortgage — not FHA, VA, USDA, etc. There are two possible loan sections.

A(1) First Mortgage — the buyer’s main mortgage

A(2) Second Mortgage

• Check this only if the buyer will also have a second mortgage. Example: First mortgage $320,000, second mortgage $40,000.
• The blanks work exactly like the first mortgage: amount of second loan, length of second loan, maximum acceptable interest rate, how long that rate limit applies, and maximum agreed origination charges.
• If there is no second mortgage, you generally don’t check A(2).

B. Texas Veterans Loan

• Refers specifically to financing through the Texas Veterans Land Board.
• Loan(s) of $___ — enter the VLB loan amount. For a total period of ___ years — enter the loan term.
• The interest-rate language is different here — the form says the rate is established by the Texas Veterans Land Board, so there is no interest-rate blank like conventional financing.

C. FHA Insured Financing

• "A Section ___ FHA insured loan" — identifies the particular FHA loan program/section. Don’t guess — have the buyer’s lender confirm the applicable FHA section.
• "Loan of not less than $___" — enter the FHA loan amount. "Not less than" means the buyer needs to be able to obtain at least this much FHA financing.
• "Excluding any financed MIP" (Mortgage Insurance Premium) — don’t include financed MIP amounts when stating the loan amount.
• "Amortizable monthly for not less than ___ years" — how long is the FHA mortgage? Example: 30 years.
• "Interest not to exceed ___%" — maximum acceptable interest rate under the terms written into the addendum; a cap, not necessarily the buyer’s actual final rate.
• "For the first ___ year(s)" — how long that stated interest-rate limitation applies.
• "Origination Charges not to exceed ___%" — maximum agreed origination charges; use lender information to complete it.

D. VA Guaranteed Financing

• The blanks are very similar to FHA. Loan amount "not less than $___" is the amount of VA financing required — the form says to exclude any financed VA Funding Fee from this figure.
• Loan term "not less than ___ years" — example: 30 years.
• Maximum interest rate "not to exceed ___%" — buyer needs financing at this rate or lower under the terms written here.
• "First ___ years" — how long the stated rate limitation applies.
• "Origination Charges ___%" — maximum allowed origination charges under the financing terms written into the addendum.

E. USDA Guaranteed Financing

• The blanks are essentially the same structure: required loan amount, loan term, maximum interest rate, period the rate limitation applies, and maximum origination charges.
• The form also says the stated loan amount excludes any financed Funding Fee.

F. Reverse Mortgage Financing

• For a reverse mortgage, including a Home Equity Conversion Mortgage (HECM).
• Original principal amount $___ — enter the reverse-mortgage principal amount.
• Interest not to exceed ___% — maximum stated interest rate. For first ___ year(s) — period that rate limitation applies. Origination Charges not to exceed ___% — maximum origination charges.
• Then choose: WILL be an FHA-insured loan, or WILL NOT be an FHA-insured loan — check the correct answer based on the actual financing.

G. Other Financing

• For financing that doesn’t fit into A–F. "From ___ (name of lender)" — enter the lender’s name.
• Principal amount $___ — amount being borrowed. Due in ___ years — loan term. Interest not to exceed ___% — maximum acceptable rate. For the first ___ years — period during which the interest-rate cap applies. Origination Charges ___% — maximum origination charges.

Other Financing — the waiver checkbox

• "Buyer does / does not waive all rights to terminate under Paragraph 2B" for this particular Other Financing loan.
• DOES waive — buyer is giving up the Paragraph 2B Property Approval termination protection for this loan. That’s a significant contractual decision.
• DOES NOT waive — buyer keeps the Paragraph 2B Property Approval protection for this financing. Paragraph 2B includes lender underwriting issues such as appraisal, insurability, and lender-required repairs.

Paragraph 2 — Approval of Financing

• This is probably the most important part of this addendum. TREC separates loan approval into two different things: 1) Buyer Approval — does the lender approve the PERSON? and 2) Property Approval — does the lender approve the HOUSE? You generally need both for financing approval under this addendum.

2A — Buyer Approval (check ONE box only)

• "Contract IS subject to Buyer obtaining Buyer Approval" — the buyer has a financing contingency based on the buyer personally qualifying for the loan, but only for the specified period.
• Fill in "Buyer may terminate within ___ days after the Effective Date" — this is the buyer’s financing approval deadline. Example: Effective Date = July 1, Buyer Approval period = 21 days.
• Buyer Approval is obtained when BOTH happen: (1) the loan terms described in Paragraph 1 are available, and (2) the lender determines the buyer satisfies the lender’s requirements concerning assets, income, and credit history. Think: does the BANK approve the BUYER?
• Important: the buyer cannot simply say "my loan was denied." To terminate under 2A, the form requires the buyer to give the seller (i) notice of termination AND (ii) a written statement from the lender explaining the reason(s) for the lender’s determination — within the stated Buyer Approval period.
• If properly terminated under this provision, earnest money is refunded to Buyer.

2A — the other choice: "NOT subject to Buyer Approval"

• The buyer is NOT making the contract contingent upon the buyer personally qualifying for financing.
• The buyer does not have the Paragraph 2A termination protection for things like failure to satisfy lender requirements concerning assets, income, or credit history — a major difference.

2B — Property Approval

• There is no number-of-days blank here — the form already supplies the deadline. This section asks: does the HOUSE qualify for the loan? Includes lender underwriting issues such as appraisal, insurability, and lender-required repairs.
• Easy example: buyer is financially qualified (Buyer Approval ✅), but the lender’s appraisal comes in too low or the property doesn’t meet lender requirements (Property Approval ❌). Two separate issues.
• Property Approval deadline: buyer may terminate under Paragraph 2B on or before the 3rd day before the Closing Date.
• Merely saying "the property didn’t get approved" is not enough — buyer must give Seller (1) notice of termination AND (2) a written statement from the lender explaining the lender’s determination.
• If properly terminated under Paragraph 2B, earnest money is refunded to Buyer. If the buyer does not terminate as required, Property Approval is deemed to have been obtained.

Easy way to remember 2A vs 2B

Paragraph 3 — Security

• No blanks here. If the lender requires it, the financing notes will be secured by the appropriate vendor’s and deed of trust liens.
• Plain English: the lender gets a lien/security interest in the property to secure repayment of the mortgage. Usually not something you’re filling out.

Paragraph 4 — FHA/VA Required Provision

• Applies when the financing is FHA-insured or VA-guaranteed.
• "Appraised value of the Property of not less than $___" — think of this as the FHA/VA appraisal-protection amount stated in the required provision. Don’t guess this number; complete it consistently with the transaction and lender/program requirements.
• For FHA/VA transactions, the buyer receives special appraisal-related protections required by the loan program. If the applicable value requirement isn’t satisfied, the provision can protect the buyer from being forced to complete the purchase or forfeit earnest money solely because of that issue.

Paragraph 4A — Buyer can still proceed

• A low FHA/VA valuation does not automatically cancel the sale. The buyer has the option to continue: "the appraisal came in low, but Buyer may still decide to buy the property."

Paragraph 4B — FHA

• An FHA appraisal is used to determine the maximum mortgage HUD will insure. It does not mean HUD is telling the buyer "this house is definitely worth this much and everything is in good condition." The form expressly says HUD does not warrant the property’s value or condition.

Paragraph 4C — VA

• If the VA’s reasonable value is lower than the sales price, the buyer can still elect to proceed subject to VA requirements.
• If the buyer pays more than the VA reasonable value, the excess is paid from a source disclosed to the VA and cannot be borrowed funds unless approved by the VA.
• The seller also has the option to reduce the sales price to the VA reasonable value, with corresponding adjustments to the down payment and loan amount.

Paragraph 5 — Authorization to Release Information

• 5A — Buyer authorizes the lender to provide Buyer, Seller, or their representatives with information regarding the status of financing approval.
• 5B — Buyer and Seller authorize the lender, title company, and escrow agent to provide copies of closing disclosures and settlement statements to the brokers/sales agents identified in the contract.

Signatures

• There are signature lines for Buyer, Buyer, Seller, and Seller. These signatures make the addendum part of the parties’ agreement when properly executed with the contract.
• Page 1 also contains spaces for Buyer and Seller initials for identification.

Small mistakes here can materially change the buyer’s rights

Quick conventional-loan example

• Buyer is approved for a conventional 30-year first mortgage. Loan amount: $360,000. Maximum rate agreed in the offer: 7.00%. Loan term: 30 years. Buyer Approval period negotiated: 21 days.
• Conceptually: A. Conventional Financing ☑, (1) First Mortgage ☑ — Principal $360,000, Due in full in 30 years, Interest not to exceed 7.00% for the first 30 years, Origination Charges not to exceed ___%.
• 2A Buyer Approval ☑ Contract is subject to Buyer obtaining Buyer Approval — Buyer may terminate within 21 days after the Effective Date.

One final distinction worth memorizing

• Option Period ≠ Buyer Approval Period ≠ Property Approval deadline. They are three separate protections with separate purposes and deadlines.