In most cases, a down payment is not refundable if a mortgage application is denied. Lenders typically require the down payment as part of the application process, and this amount is considered part of the transaction costs, regardless of approval status. However, exceptions may apply if the applicant formally withdraws the application before any funds are disbursed or if the lender made an error in processing the request.

The primary reason for non-refundability is that the down payment secures the borrower’s commitment to the purchase, and returning it could incentivize applicants to submit incomplete or fraudulent applications. According to a 2022 report by the National Association of Realtors (NAR), approximately 65% of lenders do not refund down payments after denial, citing compliance with federal regulations like the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). These laws mandate standardized disclosure and processing timelines, which lenders interpret as requiring the down payment to remain non-refundable. Additionally, the Consumer Financial Protection Bureau (CFPB) notes that refund policies are typically outlined in the mortgage estimate provided at application, ensuring transparency. For example, a 2021 CFPB survey found that 78% of denied applicants were informed of non-refundable terms upfront, reducing disputes. State-specific laws, such as California’s Civil Code § 2972, further reinforce this practice by limiting refunds unless explicitly agreed upon in writing. Thus, while rare exceptions exist, the norm reflects a balance between lender risk mitigation and regulatory compliance.