Does the Option Period Protect Your Earnest Money in Texas?

Quick answer: No, not by itself. In the TREC contract, the option period (Paragraph 5B) lets you terminate for any reason within the number of days you negotiate. Your protection if a loan falls through comes from the Third Party Financing Addendum (TREC 40-11), which has its own deadlines. Under Paragraph 2A, you have a set number of days after the effective date to terminate if you cannot obtain Buyer Approval, and you must give the seller notice plus a copy of the lender's written statement by that date.

By Chris Minteer, Founder and Co-Owner, Minteer Real Estate Team · Published October 1, 2026 · Last updated October 12, 2026

If you're buying in Grapevine, Colleyville or Southlake, you have probably heard your agent mention the option period and assumed it covers everything, including what happens if your mortgage falls apart. It doesn't. This is a question buyers often ask, and the answer lives in two different parts of the contract. Here is what the forms say. We are describing the forms, not giving legal advice.

What does the option period actually do?

It gives you the unrestricted right to terminate for any reason, within the number of days written into Paragraph 5B. The current TREC One to Four Family Residential Contract (Resale) is Form 20-19, effective July 1, 2026 (it replaced 20-18). Contracts signed before that date used the earlier form, with the same Paragraph 5 structure.

Here is how Paragraph 5 works:

• The option fee amount and the number of option days are negotiated and written into Paragraph 5. TREC's form leaves both blank.
• Within 3 days after the effective date, you deliver the earnest money and the option fee to the escrow agent. The agent is authorized to release the option fee to the seller, and the option fee is credited to the sales price at closing if you buy.
• To use the option, you give the seller notice of termination by 5:00 p.m. (local time where the property is located) on the last day. If you do, the option fee is not refunded, but any earnest money is refunded to you.
• If no option fee amount is stated, or you do not deliver the fee on time, you do not get the unrestricted right to terminate under Paragraph 5. Time is of the essence, which means strict compliance with the deadlines is required.

What protects your earnest money if your loan falls through?

The Third Party Financing Addendum, TREC Form 40-11. It is attached when the buyer checks it in the contract's list of addenda, so cash buyers and buyers without a financing contingency do not have it. TREC's 40-11 (11-04-2024) is the current version on its contracts page.

Paragraph 2A, Buyer Approval, says that if you cannot obtain Buyer Approval, you may terminate within a number of days after the effective date by giving the seller (i) notice of termination and (ii) a copy of a written statement from the lender explaining its reasons. If you terminate this way, your earnest money is refunded. If you do not terminate under 2A, the contract is no longer subject to you obtaining Buyer Approval. The addendum treats Buyer Approval as obtained once the loan terms are available and the lender determines you have satisfied its requirements on assets, income and credit history.

The key point is what triggers your right. It is your timely notice with the lender's statement, not the date a denial happens. A denial that is documented after the 2A deadline does not preserve the 2A right to terminate.

Paragraph 1 of the addendum also says you must apply promptly and make every reasonable effort to obtain approval, so delays on your side can weaken your position.

What if the appraisal comes in low?

That is handled separately, under Paragraph 2B, Property Approval. If your lender determines that the property does not satisfy its underwriting requirements, including appraisal, insurability and lender-required repairs, you may terminate on or before the 3rd day before the closing date by giving the seller notice of termination and a copy of the lender's written statement. If you terminate under 2B, the earnest money is refunded. If you do not, Property Approval is deemed obtained. FHA and VA financing also carries its own required provision in Paragraph 4 of the addendum, so read the form that applies to your loan.

How do the three protections compare?

They are different tools with different deadlines.

Source: TREC Forms 20-19 and 40-11. The blanks are negotiated, so your contract's dates control.

What happens if a deadline passes?

You may lose the right to cancel under that provision. If the Buyer Approval deadline passes without a termination notice, you may lose the right to cancel under the addendum. Failing to close without another contractual right can put your earnest money at risk: under Paragraph 15 of the contract, if a buyer fails to comply, the seller may terminate and receive the earnest money as liquidated damages, or pursue other remedies. Ask your agent or a Texas real estate attorney about your own contract.

How do you avoid a missed date?

1. Know all your dates. Ask: "What is my option period end date, and what is my Buyer Approval deadline?" They can fall before, on or after one another, because each is a blank filled in by negotiation.
2. Talk to your lender before you set the financing deadline. Choose a date your lender confirms is realistic. You can use any lender you choose.
3. Apply promptly. The addendum expects it.
4. Get updates in writing as the deadline nears, and if you need more time, ask about a written amendment before the date passes.
5. Do not assume the option period covers financing. They are separate questions with separate answers.

We walk through both dates with every buyer before an offer goes in. Our related reading may help: Top Dallas Fort Worth Home Buyer Questions, Interest Rates Affect a Buyer's Purchasing Power, and Time to Close: Follow These Tips for a Smooth Closing Day.

Frequently asked questions

What is the difference between the option period and the financing deadline?

The option period lets you terminate for any reason within the days negotiated in Paragraph 5B, and you lose the option fee. The financing deadline is a separate number of days in Paragraph 2A of the Third Party Financing Addendum. Each is a blank written into your contract, so the dates can differ.

Can I get my earnest money back if my loan is denied?

Your contract can allow a refund if you cannot obtain Buyer Approval and you give the seller notice and the lender's written statement within the number of days in Paragraph 2A. A lender decision about the property itself is handled under Paragraph 2B.

How long is the option period in Texas?

The option fee amount and the number of option days are negotiated and written into Paragraph 5. TREC does not set a standard length.

Who do I ask about my financing deadline?

Ask your agent and your lender, and confirm the actual date in your contract in writing. Do not assume it matches your option period end date.

Is the option fee paid to the seller?

The option fee is delivered to the escrow agent with your earnest money, released to the seller, and credited to the sales price at closing if you buy.

Sources

• One to Four Family Residential Contract (Resale), TREC No. 20-19 — Texas Real Estate Commission
• TREC No. 20-19 (PDF), Paragraphs 5 and 15 — Texas Real Estate Commission
• Third Party Financing Addendum, TREC No. 40-11 — Texas Real Estate Commission
• TREC No. 40-11 (PDF), Paragraphs 1 and 2, Approval of Financing — Texas Real Estate Commission
• Contract forms and effective dates — Texas Real Estate Commission
• NTREIS Agent Market Share reports, single-family residential, City of Grapevine and City of Colleyville, January 1 to December 31, 2025, ranked by total sides (reports run October 23, 2026)

Checked October 12, 2026.

If you're getting ready to buy in Northeast Tarrant County, we'd be glad to talk through your timeline and what to expect at each step. Start at minteerteam.com/buying, or reach the team at (817) 796-9172.

About the author: Chris Minteer founded Minteer Real Estate Team in 1986 and is a REALTOR® with the team, a full-service residential real estate team based in Grapevine, Texas, serving Northeast Tarrant County and the greater Dallas–Fort Worth metroplex. #1 in Grapevine, #3 in Colleyville and top 3 in GCISD for single-family transactions in 2025, per NTREIS. Minteer Real Estate Team is brokered by Real Broker, LLC (Broker #9003138). 216 W Wall Street, Grapevine, TX 76051 · (817) 796-9172 · info@minteerteam.com · REALTOR® · Equal Housing Opportunity.

This article is general information about what TREC forms say, not legal advice. Read your own contract and consult a Texas real estate attorney.