New York State Real Estate Salesperson Licensing Exam

What does the Real Estate Settlement Procedures Act (RESPA) require lenders to provide?

1. Annual percentage rate

2. Good faith estimate of closing costs

3. Credit report disclosure

4. Loan-to-value documentation

The correct answer is: Good faith estimate of closing costs

The Real Estate Settlement Procedures Act (RESPA) requires lenders to provide a Good Faith Estimate of closing costs. This requirement is crucial as it ensures transparency in the home buying process by helping borrowers understand the various costs associated with obtaining a mortgage and closing on a property. The Good Faith Estimate outlines the anticipated closing costs and helps prevent consumers from being blindsided by hidden fees, promoting informed decision-making. This act plays a significant role in protecting consumers and aims to facilitate understanding of the loan process, enhancing the buyer's ability to compare costs across different lenders. By requiring this estimate, RESPA makes it easier for buyers to identify and analyze the financial implications of real estate transactions before they commit to a loan. While the other options involve important aspects of the lending process, they are not mandated by RESPA in the same way. For instance, the annual percentage rate (APR) provides crucial information about the cost of borrowing, credit report disclosures relate to the assessment of creditworthiness, and loan-to-value documentation pertains to the assessment of collateral. None have the same specific requirement under RESPA for lenders to provide upfront to borrowers, making the Good Faith Estimate unique in this regard.