Hawaii Pre-Licensing National Practice Exam

Under the Truth-in-Lending Act (Regulation Z), what document must a lender provide to an applicant for a real estate loan?

1. Loan application form

2. Disclosure statement

3. Credit report

4. Promissory note

The correct answer is: Disclosure statement

The correct response is that, under the Truth-in-Lending Act (Regulation Z), lenders are required to provide a disclosure statement to applicants for a real estate loan. This disclosure statement is essential as it outlines the key terms and conditions of the loan, including the annual percentage rate (APR), finance charges, payment schedule, and total cost of the loan. This requirement is part of the federal mandate to ensure that borrowers are informed about the true cost of borrowing, empowering them to make educated financing decisions and compare different loan offers effectively. In contrast, while a loan application form may be necessary to initiate the lending process, it does not provide the critical financial disclosures that Regulation Z mandates. A credit report contains an applicant's credit history but is not a document that must be provided by the lender; rather, it is often used by the lender to assess creditworthiness. Lastly, a promissory note is a contractual agreement outlining the obligation to repay the loan, but it does not serve the purpose of disclosing the terms under the Truth-in-Lending Act. Thus, the disclosure statement is specifically designed to meet the regulatory requirements aimed at enhancing transparency in lending practices.