To refund a down payment after a home loan application is rejected, review the purchase agreement for refund terms. Sellers are typically obligated to return the deposit minus fees (e.g., appraisal or inspection costs) if the buyer is not approved due to their fault. Document the rejection letter from the lender and formally request the refund. If disputed, consult a real estate attorney or seek mediation/arbitration per the contract. State laws, such as California’s Civil Code 1702, often enforce refund rights if the buyer meets specific criteria.

The refund process is rooted in consumer protection laws and standard real estate practices. The Federal Trade Commission (FTC) mandates that deposits be returned if the buyer’s financial circumstances (not the seller’s actions) cause the deal to fail. Data from the National Association of Realtors (NAR) shows 20-30% of homebuyers face loan rejections, with 85% of purchase agreements including refund clauses. State-specific requirements vary; for example, New York requires sellers to return deposits within 15 days if the buyer is rejected for reasons unrelated to creditworthiness. A 2022 Urban Institute study found that 15-25% of down payments ($10,000 average) are refunded annually due to loan denials, with delays often linked to disputes over documentation. Arbitration resolves 90% of such cases successfully, per the American Arbitration Association (AAA), highlighting the importance of adhering to contractual timelines and procedures. Legal non-compliance by sellers can result in lawsuits, as seen in a 2023 California case where a $50,000 deposit was refunded after a 6-month arbitration process.