What is a loan estimate?

A loan estimate is a document that borrowers receive when they apply for a mortgage loan, providing detailed information about the terms and costs associated with the loan. This document includes critical components such as the loan amount, interest rate, monthly payment, and estimated closing costs. It serves to help borrowers understand the financial implications of the loan and compare offers from different lenders.

The clarity and transparency that a loan estimate provides are essential in the home-buying process, allowing individuals to make informed decisions about their financing options. It's an important tool regulated by federal law to ensure that borrowers can easily comprehend the financial obligations they are undertaking.

On the other hand, the other options do not accurately describe a loan estimate. An advertising brochure for banks would solely serve marketing purposes, not providing the detailed terms required in a loan estimate. A summary of a borrower's credit history relates to the information on a credit report rather than the specifics of a loan. Lastly, guidelines for improving credit scores focus on financial health rather than the terms of a mortgage loan.