What Is a Mortgage Contingency?

The sale of the home is conditional on the loan. If the mortgage lender on your loan cannot secure financing within the deadlines in the contract, you're able to walk away from the property and get your EMD back.

1. Your offer, usually backed by a preapproval letter, includes the clause and its deadline.
2. Get your loan application in and try to obtain financing by sending all documents the lender asks for.
3. The mortgage lender underwrites your file and orders the appraisal.
4. A conditional loan approval is sent from your loan officer.
5. If your loan isn't approved, your mortgage lender will send you a formal denial, typically within the contingency period.

A good clause names the exact loan you're counting on:

• The loan type, such as conventional, FHA, VA or USDA
• The loan amount and term
• The highest interest rate you'll accept
• A cap on origination charges, part of your closing costs
• The deadline, and how notice of a denial gets delivered

In Texas, Buyer Approval only counts once the loan terms you wrote in are available, so your limits define what the contract protects. Run the payment at your rate cap before you sign, cause those are the terms you're telling the selling side you will be taking.

Normally, as long as your contract is written. No standard sets the time frame and it's normally within a few weeks of signing your contract. The purchase agreement form normally leaves the number of days blank.

Closing takes 30 to 45 days after an accepted offer, by Freddie Mac's estimate. Put the financing deadline early in that stretch, but not too early: a lender who needs four weeks to say no does you no good if your contingency ran out after three. Before your real estate agent fills in the blank, ask your loan officer how fast they can get to a full underwriting decision.

Mortgage contingency date vs. closing date

The contingency date is your last day to cancel over financing, and the closing date is when you sign and the loan funds. Once the first passes, you're committed.

The "3-7-3 rule" people ask about comes from two disclosures on a clock. You get the Loan Estimate within 3 business days of applying and no fewer than 7 business days before closing, and the Closing Disclosure has to be in your hands at least 3 business days before you sign.

You lose your loan exit. Once that date passes without written notice, the deal isn't contingent on loan approval anymore, so if financing falls through later and you can't close, you're in default and the seller can claim your EMD.

When an appraisal or insurance quote is running behind, we tell agents to send over a TREC 39-11 amendment (Paragraph 9) a couple days before the deadline expires, since the seller doesn't have to agree to extra time.

Also, leave your credit and job alone until you've signed at closing. Switching jobs mid-process means the underwriter has to stop and re-verify your new pay, while a credit score that slips during underwriting can mess up what you qualify for. And if you're dealing with a slow bank, keep in mind that moving your file to another lender means starting over with a new application and Loan Estimate, so make that jump while you still have days left.

That clause only covers your loan; four other addenda cover the house and title:

• An appraisal contingency lets you renegotiate or cancel if the home appraises below the purchase price.
• A home inspection contingency gives you time to have a home inspector check the house, then ask for repairs or back out. In Texas, buyers do that due diligence during the option period.
• A home sale contingency makes the deal depend on selling your current home first, and a bridge loan is one way around it.
• A title contingency lets you out if the title search turns up defects the seller doesn't clear (Paragraph 6D in Texas).

Dropping the appraisal clause won't fix a low value, either: if a $400,000 deal appraises at $380,000, we still lend off $380,000 and you bring the difference unless the seller cuts the price.

The buyers who can safely waive are the ones who could close anyway, with cash or other necessary funds on hand if the loan fell through. Without the clause you're bound to buy even if the lender says no, and you risk losing your earnest money.

The pull to waive is real. An offer with no mortgage contingency takes your lender's decision off the seller's plate, and with several offers on the table that certainty can beat a higher price. But you don't have to waive contingencies outright to compete: a shorter window keeps your exit while cutting the seller's wait, and fewer contingencies elsewhere in the offer help too.

On a TREC contract, waiving is one checkbox on the Third Party Financing Addendum. Property Approval stays in place, so you can still exit over the appraisal or insurability. Giving up the appraisal piece too takes TREC's appraisal addendum (TREC No. 49-1), which offers a full or partial waiver. Before checking that box, ask your loan officer how far your file has gotten through underwriting.

Why don't sellers like a contingent offer?

They're tied to your contract while you hold an exit, and the listing sits as contingent or pending in the meantime. A deal that dies late costs them weeks with other potential buyers.

In Texas, the financing contingency lives in a separate Texas Real Estate Commission (TREC) form, the Third Party Financing Addendum (TREC No. 40-11). Since that version became mandatory on January 3, 2025, ending a contract over Buyer Approval takes a copy of the lender's written statement of reasons, where the old 40-10 needed only written notice.

Buyer Approval and Property Approval: two separate clocks

Buyer Approval is about you: the loan terms you wrote in are available, and the lender is satisfied with your assets, income and credit history. Property Approval is about the house and covers the appraisal and insurability, plus any repairs the lender requires. Either exit takes a notice of termination, usually TREC's Notice of Buyer's Termination of Contract (TREC No. 38-8), plus the lender's written statement.

Regulation B gives a lender up to 30 days after a completed application to send its decision, which can outlast a short Buyer Approval window, so ask your loan officer how fast they can put a denial in writing. More time takes the seller's signature on Paragraph 9 of the Amendment to Contract (TREC No. 39-11).

Of these, the option period is the only exit that needs no reason. Every other one runs through the lender's paperwork, so a missing letter can hurt as much as a missed date.

What happens to your earnest money in Texas

Your earnest money goes to the escrow agent within 3 days after the Effective Date, along with the option fee, and at closing it's applied first to your cash down payment.

A refund takes a release both sides sign. If the seller refuses, you can make a written demand, and the escrow agent may pay you if no written objection arrives within 15 days.