What is the function of a Loan Estimate?

The Loan Estimate serves the crucial function of disclosing important loan terms and estimated payments to borrowers within three days of their application for a mortgage. This document is designed to give borrowers a clear understanding of the costs associated with the loan, including the interest rate, monthly payment, and other fees. By providing this information early in the loan process, it allows borrowers to make informed decisions and compare different loan offers more easily.

This early disclosure is mandated by the Truth in Lending Act and the Real Estate Settlement Procedures Act, ensuring borrowers are well-informed from the outset of their borrowing experience. It helps promote transparency in lending practices and ensures that borrowers are not faced with unexpected costs later on in the loan process. The Loan Estimate does not finalize payment schedules, provide an appraisal, or approve credit applications, as those are distinct functions that occur at different stages of the lending process.