Yes, the down payment can typically be refunded if a loan is not approved, but this depends on the loan type, lender policies, and whether the borrower cancels the application before underwriting begins. For most mortgages, if the borrower withdraws the application before the lender has started underwriting, the down payment is usually refundable. However, once underwriting is initiated, lenders may retain the deposit as a processing fee. Auto loans often follow similar rules, with refunds contingent on cancellation before final approval.

The refund policy varies by loan category and state regulations. For mortgages, the Consumer Financial Protection Bureau (CFPB) states that lenders must provide written notice of deposit refund policies upfront. Data from the CFPB reveals that 12% of consumers who apply for mortgages report issues recovering down payments when loans are denied, often due to unclear terms in the loan agreement. In contrast, the National Association of Realtors (NAR) reports that 30% of homebuyers in 2022 lost down payments after loan denials, though this figure dropped to 18% in states with stricter consumer protection laws, such as California and New York. Lenders are legally required to adhere to the TILA-RESPA Integrated Disclosure (TRID) rule, which mandates a three-day cancellation period for refinances, but this does not apply to initial purchases. For auto loans, the Federal Trade Commission (FTC) notes that 25% of disputed deposits involve delayed refunds, often due to incomplete borrower documentation. Ultimately, the refund hinges on the contract’s cancellation clause and whether the borrower timely notifies the lender of withdrawal. Lenders may impose a small non-refundable fee (e.g., $100–$500) to offset administrative costs, but this is not universal.