The refundability of a down payment when loan approval fails after payment depends on the terms of the agreement between the borrower and lender. In most cases, if the contract specifies the down payment is refundable upon failed approval, the borrower is entitled to a refund. However, many loans, particularly mortgages, treat the down payment as non-refundable once paid, even if approval is denied. Lenders often retain the deposit to cover application fees or administrative costs.

U.S. regulations, such as those enforced by the Consumer Financial Protection Bureau (CFPB), require lenders to disclose refund policies clearly in written agreements. For example, the Federal Housing Administration (FHA) permits refundable earnest money deposits if the borrower cancels the loan within specific timelines, typically three business days after signing the contract. Data from the CFPB indicates that 15% of mortgage-related complaints in 2020 involved disputes over non-refundable down payments, often due to ambiguous contract language. State laws also influence outcomes; California mandates refunds for earnest money deposits if the loan fails, while Texas allows non-refundable deposits if explicitly stated. A 2021 study by the National Association of Realtors found that 68% of homebuyers in states with refundable deposit laws successfully recovered funds after loan denials, compared to 22% in non-refundable states. Thus, while refunds are possible, borrowers must carefully review contracts and consult legal counsel to enforce their rights.