What is the purpose of the Loan Estimate in mortgage lending?

The primary purpose of the Loan Estimate in mortgage lending is to provide the borrower with key information about the loan terms and costs. This document is mandated by the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) and is designed to help borrowers understand the crucial aspects of their mortgage.

The Loan Estimate must be provided within three business days after the borrower applies for a mortgage. It outlines essential details such as the loan amount, interest rate, monthly payment, and a breakdown of estimated closing costs. By consolidating this information, the Loan Estimate enables borrowers to make informed decisions regarding their mortgage options and to compare different loan offers from various lenders.

While outlining the monthly payment schedule or estimating closing costs are components of the document, they are not the overarching purpose. The Loan Estimate conveys a comprehensive overview of both terms and costs, ensuring that borrowers have a clear understanding of what to expect throughout the lending process. This transparency is crucial for fostering informed decision-making by the borrower.