To refund a down payment for a used home when loan approval fails, the buyer must first review the purchase agreement for an earnest money clause. This clause outlines conditions for refunding the deposit, typically requiring written notice to the seller within a specified timeframe. If the seller disputes the refund, the buyer may need to file a claim with a neutral third party, such as a title company or escrow agent, who holds the deposit. State laws and local real estate regulations often dictate timelines and procedures, so consulting a real estate attorney or broker is advisable.

The process hinges on documented proof of loan rejection, including a written notice from the lender. According to the National Association of Realtors (NAR), approximately 10-20% of home purchases fail due to financing issues, with 2022 data showing 17% of cancellations tied to loan denials. The Consumer Financial Protection Bureau (CFPB) reports that 30% of loan applications are denied due to credit score inaccuracies or insufficient income documentation. These statistics underscore the importance of adhering to formal refund protocols to avoid disputes. State-specific requirements, such as California’s Civil Code §1700-1709, mandate clear refund timelines, while others, like New York’s General Business Law §712, emphasize written agreements. Proactive communication and legal compliance ensure smoother resolution, minimizing financial and legal risks for both parties.