What is a 'loan estimate' in the context of mortgages?

A loan estimate is a standardized form that provides crucial information about the mortgage loan for which a borrower is applying. This document is mandated by the Truth in Lending Act and the Real Estate Settlement Procedures Act, designed to ensure that borrowers receive clear and comprehensive details about the costs of their mortgage. The loan estimate includes key elements such as the loan amount, interest rate, projected monthly payments, estimated closing costs, and other terms of the loan, enabling borrowers to make informed decisions.

It serves to facilitate comparison between different loan offers, ensuring transparency in the mortgage process. The information provided helps the borrower understand their financial obligations and aids in the evaluation of the overall affordability of the mortgage. This form must be delivered to the borrower within three business days of receiving their loan application, ensuring that borrowers have timely access to this essential information before moving forward with the mortgage process.