Can a Buyer Change Financing?

A seller accepted a contract with conventional financing and a full appraisal waiver. The buyer now wants to switch to FHA/VA financing. Does the seller have to allow the buyer to make this switch? Can the seller terminate? Can the buyer terminate if they are unable to obtain FHA/VA approval?

No to all questions. Generally, as long as the buyer produces funds at closing, the buyer may switch financing types. However, if the buyer is attempting to switch from conventional financing to FHA/VA financing, the lender will require an executed amendatory clause. Since the seller did not originally agree to allow the buyer to pursue FHA/VA financing, the seller may refuse to sign the amendatory clause, which could prevent the buyer from obtaining approval for this financing type.

There is no provision in the One to Four Family Residential Contract (Resale) (TXR 1601, TREC 20-16) that allows the seller to terminate due to the buyer attempting to switch financing. If, however, the buyer is unable to obtain the FHA financing and cannot otherwise produce the funds to close pursuant to Paragraph 9 of the contract, the seller—as the non-defaulting party—would have the right to exercise the remedies available in Paragraph 15 of the contract.

Lastly, since the Third Party Financing Addendum (TXR 1901, TREC 40-9) only provides the buyer the right to terminate for the financing type reflected in Paragraph 1 of the addendum, the buyer will not be able to terminate for failing to get FHA/VA approval, unless the seller agrees to add a new addendum to the contract stating the buyer is seeking FHA/VA financing.

Source: Texas REALTORS® Legal Hotline