Which of the following best describes a Loan Estimate?

The statement "A Loan Estimate is an estimate of closing costs provided before loan application" captures the essence of what a Loan Estimate is designed for under the Truth in Lending Act (Regulation Z). The Loan Estimate is a standardized document that lenders are required to provide to consumers within three business days of receiving a loan application. Its primary purpose is to inform borrowers about the key features of the loan they are applying for, including the estimated closing costs, interest rate, monthly payment, and other essential information relevant to the cost of the loan.

This document helps borrowers compare different loan offers and make informed decisions as they navigate the mortgage process. It is important to highlight that while it provides an estimate of closing costs, it is not an official offer from the lender, nor does it constitute a final statement of loan fees and costs, which would be provided after the loan has been finalized. Instead, it serves as an early tool for transparency and helps set expectations for the borrowing process.