What is a Loan Estimate?

A Loan Estimate is primarily a form that provides key information about a mortgage loan. This document is designed to help borrowers understand the essential details of a loan they are considering and includes information about the loan terms, projected payments, and estimated closing costs. The core purpose of the Loan Estimate is to promote transparency in the lending process, allowing potential borrowers to compare different loan offers and make informed decisions.

This document is provided by lenders within three business days of receiving a loan application and is crucial for ensuring borrowers are aware of the financial commitments and obligations associated with obtaining a mortgage. It is an important tool in the home buying process, helping to facilitate better understanding of what a borrower is getting into before committing to a loan.

The other options do not accurately capture the essence of a Loan Estimate. While it does summarize various costs associated with the mortgage, its main purpose is broader — to provide comprehensive information about the loan itself, not just the fees. A Loan Estimate does not guarantee loan approval nor does it validate sufficient income; those aspects are part of the underwriting process that occurs subsequent to the initial estimate.