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Contract to closeFinancing contingency: how it works and when it ends

A financing (loan) contingency lets the buyer cancel and get the earnest money back if the loan described in the contract is not approved by a deadline. In Texas, the Third Party Financing Addendum (40-11) gives a Buyer Approval period – the days written after the effective date – and requires the lender's written statement to terminate. In California, the RPA's loan contingency runs 17 days by default and must be removed in writing.

How it works

  1. What it protects

    The buyer's earnest money if the loan in the contract – amount, type, rate limits – is not approved in time.

  2. The deadline

    Set in the contract. After it passes, the buyer usually can no longer cancel for financing reasons without risking the earnest money.

  3. Proof

    Contracts often require the lender's written statement of the reason when the buyer terminates.

Texas and California

  1. Texas – Buyer Approval (40-11 ¶2A)

    If the buyer cannot obtain Buyer Approval, the buyer may terminate within the days written after the effective date, with notice and the lender's written statement; earnest money refunded. After that date the contract is no longer subject to Buyer Approval.

  2. Texas – Property Approval (¶2B)

    Property-side lender requirements (appraisal, insurability, repairs) have a separate deadline: the 3rd day before closing.

  3. California – loan contingency

    17 days after acceptance by default under the C.A.R. RPA; removed in writing; if not removed on time, the seller may give a Notice to Buyer to Perform with at least 2 days before cancelling.

What the TC does

  • Put the financing deadline on the timeline the day the contract is signed.
  • Ask the lender for status well before the deadline – not on the day.
  • If approval will be late, get an amendment extending the date signed before it passes.
  • If the loan is denied in time, make sure the termination includes the lender's written statement.

Questions about financing contingencies

What is a financing contingency?

A contract term that lets the buyer cancel with the earnest money back if the loan described in the contract is not approved by a deadline.

How long is a financing contingency?

Whatever the contract says – in Texas the days written in the financing addendum; in California 17 days by default under the RPA.

What happens after the financing contingency deadline?

The buyer usually can no longer cancel for financing reasons without risking the earnest money.

Can the financing deadline be extended?

Yes, with an amendment signed by both parties before it passes – in Texas, TREC 39-11 has a box to change the Buyer Approval date.

Is a financing contingency the same as an appraisal contingency?

No. Financing is about the loan approval for the buyer; appraisal is about the property's value – contracts often treat them separately.

Related

ClosingCode tracks the financing deadline from the contract, reminds the team before it and keeps the buyer updated in English or Spanish.

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Sources: TREC No. 40-11 Third Party Financing Addendum ¶2 (effective January 3, 2025); TREC No. 39-11 box (9); C.A.R. RPA revised 12/22 ¶3L(1), ¶14.

General information, not legal or lending advice. ClosingCode is software; it is not a law firm, lender or brokerage.