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Buyer Credit Approval Contingency Should be Removed from the Contract

Financing contingency - 3rd party financing addendum

In Texas the Buyer can place Credit Approval Contingency in his/her offer and when is agreed by the Seller, it becomes part of the contract. Then, this credit approval contingency allows the Buyer to terminate the contract without any consequences and get his/her Earnest Money back, within certain days if he/she cannot obtain financing based on several terms and conditions.

Let’s go through this Financing Contingency - 3rd party financing Addendum TREC NO. 40-5 together:

Conventional Financing Contingency Numbeer of Days

The number of days that Buyer has time to notify the Seller is negotiable and must be filled out and agreed by both Buyer and Seller.  Let’s use 14-21 days as a TYPICAL value in our area for illustration purposes only. Please note that this value could be completely different for different contracts

Now let’s look at the Terms and Conditions of the Loan:

For simplicity purposes, let’s use Conventional Financing options here. All other Financing options such as Texas Veterans Loan, FHA Insured Financing, VA Guaranteed Financing have similar, but not exactly the same, options.

Conventional Financing Contingency

As you see there are five blanks that define terms and condition of the loan. These five terms and conditions are negotiable and must be filled out and agreed by both Buyer and Seller.  Let’s use some TYPICAL values in our area for illustration purposes only. Please note that these values could be completely different for different contracts.

Conventional Financing Contingency Filled Out

If the Buyer cannot be approved with these Five (5) specific terms and conditions, he/she can, but doesn’t have to, terminate the contract within the specified number of days shown in first figure (e.g., 14-21 days) and gets his/her Earnest Money back.

In my Opinion, This is not fair to the Seller that loses e.g., 14-21 days without getting anything. The Buyer must have done his/her homework, applying for a loan and gotten pre-approved before making any offer. After accepting the offer by Seller (which becomes contract), he/she should not be given addition 14-21 days to apply for the loan.

I am not sure other states have the same or similar options, but I would like to hear your side of story.

Contact us about your Real Estate Questions

Equal Housing Opportunity Commission Bahman Davani REALTOR

Bahman Davani, CM
TAHS, eAgentC, and
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Office: (214) 457-7055
Cell: (214) 457-7055
Fax: (972) 596-7984

P.O. Box 261665
Plano, TX 75026-1665

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, TX 75026 US
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