Nationwide Mortgage Licensing System (NMLS) Practice Exam

What is required from a borrower to assure the lender that the conditions of a loan are met?

1. A loan commitment

2. A loan estimate

3. A loan application

4. A loan agreement

The correct answer is: A loan agreement

A loan agreement is essential as it serves as a legally binding contract between the borrower and the lender outlining the terms and conditions of the loan. This document ensures that both parties understand their responsibilities and obligations, including the total loan amount, interest rate, repayment schedule, and any other specific provisions that must be fulfilled. It acts as reassurance for the lender that the borrower is committed to meeting the agreed-upon conditions of the loan, and it provides legal recourse should either party fail to comply with these conditions. In contrast, a loan commitment is a preliminary indication from the lender that they are willing to lend a specific amount under designated terms, but it does not itself enforce the loan's conditions. A loan estimate is a disclosure that provides a summary of the costs associated with the loan, but it does not serve as a contract enforcing the borrower's responsibilities. Similarly, a loan application is merely a request for financing, encompassing the borrower's personal and financial information, but it does not assure the lender that the loan conditions will be met.