Final answer:
RESPA requires that the Loan Estimate be provided to the borrower within three business days after the application is received and that the Closing Disclosure be received by the borrower at least three business days before loan settlement. These disclosures are designed to inform the borrower about the estimated and final loan costs and terms.
Step-by-step explanation:
The Real Estate Settlement Procedures Act (RESPA) requires that certain disclosures be provided to the borrower before the settlement or closing of a mortgage loan. RESPA is a federal statute that aims to provide transparency to homebuyers and protect them from abusive practices during the mortgage loan process. Two key disclosures required by RESPA before settlement are the Loan Estimate and the Closing Disclosure.
The Loan Estimate must be delivered or mailed to the borrower no later than the third business day after receiving the application. This document outlines the estimated interest rates, monthly payments, closing costs, and other loan terms. Following this, the Closing Disclosure, which gives the final details of the transaction, must be received by the borrower at least three business days before the loan closes. This provides the borrower with enough time to review the final terms and costs before signing the loan papers.
Both disclosures are crucial in ensuring that borrowers fully understand their financial commitments and the legal implications of their mortgage agreement. By providing these disclosures well before the closing, RESPA aims to allow borrowers to make informed decisions regarding their real estate transactions.