What document must borrowers receive to understand loan costs and terms?

The Loan Estimate is the correct document that borrowers must receive to understand loan costs and terms. This document is required by the Consumer Financial Protection Bureau (CFPB) and must be provided to borrowers within three business days after they apply for a mortgage.

The Loan Estimate details the key features of the loan, including the interest rate, monthly payment, and total closing costs. It helps borrowers make informed decisions by comparing different loan offers and understanding the financial implications of the mortgage they are considering. Additionally, the Loan Estimate lists important terms and conditions, which helps borrowers understand their obligations better and ensures they are fully aware of all costs associated with obtaining the loan.

In contrast, the Closing Disclosure is provided later in the process and outlines the final terms of the mortgage and the actual costs at closing, while the Mortgage Agreement is the legal document that outlines the borrower’s promise to repay the loan. A Pre-approval Letter indicates that a lender has evaluated a borrower's creditworthiness and has conditionally agreed to lend them money, but it does not contain detailed information about costs or loan terms.