In the United States, whether a down payment can be refunded after a mortgage application is not approved depends on the terms of the purchase agreement and state laws. Generally, if a buyer makes an earnest money deposit as part of a home offer, this deposit may be refundable if the mortgage fails, but the refund is not automatic. The purchase agreement typically outlines conditions for refunding earnest money, such as whether the buyer must obtain financing or the seller’s obligations. If the mortgage application is denied, the buyer may lose the deposit unless the agreement specifies otherwise. However, the actual down payment (paid at closing) is only refundable in rare cases, such as during escrow disputes or if the seller breaches the contract.

Data from the Consumer Financial Protection Bureau (CFPB) indicates that approximately 20% of mortgage applications are denied after initial approval, often due to changes in the borrower’s financial status or property issues. State laws play a critical role; for example, in California, sellers must return earnest money if the buyer fails to secure financing unless the agreement states otherwise. The National Association of Realtors (NAR) reports that 30% of homebuyers face financing issues, but most resolve these before closing. A 2022 CFPB study found that only 5% of disputes involving earnest money deposits result in refunds due to mortgage denial, highlighting the importance of clear contractual language. Ultimately, buyers should review their purchase agreement and consult legal counsel to understand refund rights.