What is a common purpose of a loan estimate?

The primary purpose of a loan estimate is to offer a clear estimate of loan terms and closing costs. This document is a crucial element in the mortgage process because it helps borrowers understand the financial implications of the loan they are considering. It provides essential information, such as the interest rate, monthly payment amount, estimated taxes and insurance, and breakdowns of various closing costs. By presenting these details in a standardized format, it ensures that borrowers can easily compare different loan offers from various lenders.

This clarity helps borrowers make informed decisions, as it allows them to see not only the costs associated with the loan but also how the terms might affect their financial situation in the long term. The loan estimate is a legally required document that must be provided within three business days of receiving a borrower's application, reinforcing its importance in promoting transparency in the lending process.